Kondotec Overview

Risks

Dependence on domestic construction spending

Domestic construction spending account for a considerable percentage of the KONDOTEC Group’s sales continues to be in a situation where significant growth cannot be expected.Stagnation in the conditions of the construction industry and a decline in demand caused by such conditions may have a significant impact on the business results of the KONDOTEC Group, such as decreased sales and profits.

Dependence on imported materials and FX fluctuation

While having been increasing the procurement of imported merchandise from overseas, such as China, for the purpose of selling competitive merchandise, the KONDOTEC Group is currently procuring about 90% of them from China. Accordingly, there is a possibility that securing merchandise will become difficult, because the pursuit of business by the suppliers is greatly influenced by U.S.-China trade friction, changes in statutory regulations in China and others.
In addition, the purchase price is affected by volatility in the exchange market. Accordingly, difficulties in securing merchandise and high volatility in the exchange market may materially impact KONDOTEC's future financial results.

Price competition

In each of product markets and local markets to which the Group belongs, price competition with competitors continues to intensifying while we cannot expect significant growth. If price competition with competitors continues to intensify and it becomes difficult to maintain fair prices, this may have a significant impact on the business results of the KONDOTEC Group, such as decreased sales and profits.

Impact of fluctuation in product markets

Purchase price of steel which is a main raw material for our products, may fluctuate due to supply and demand in the global markets.
High market volatility may materially impact KONDOTEC's future financial results.

Impact of natural disasters on supply chain

The KONDOTEC Group has four factories in Japan.
In the case of the suspension of factory operation due to natural disasters, power outage and infections, the production capacity of our factories may be lowered despite complementing production through cooperation between the four factories and outsourcing manufacturing to subcontract factories.
In the case of natural disasters, power outage and infections, suppliers and subcontractor may suspend their operations and distribution routes may be cut off and blocked despite sourcing products and merchandise from many domestic and international suppliers and outsourcing a part of production processes.
Due to the above factors, long delays in supply of products and merchandise may negatively affect future financial results such as sales and profits.

Credit risk of customers

The KONDOTEC Group is promoting diversified small-lot sales and has many counter-parties.
Given the unstable economic condition caused by the COVID-19 pandemic, bad debt expense may occur due to bankruptcy, our profits may be affected negatively and future financial results may be materially impacted.

Impairment loss risk of Non-current assets

The KONDOTEC Group conducts M&A as needed to achieve sustainable growth and improve the corporate value over the long term.
Recently, goodwill and intangible assets were recorded accompanying the acquisition every year.
We consider acquisitions and capital/business alliances to be important strategies for strengthening our business foundations and continue to evaluate M&A opportunities.
Given that cash flow is lower than expected due to various factors, future financial results may be materially impacted and impairment loss including goodwill and customer-related assets may occur.