OTEC CORPORATION

In the event of a major earthquake or other natural disaster, damage to or loss of the Group's assets, as well as human and physical damage, could make it difficult to continue normal business activities. Predicting the occurrence or timing of such events is difficult, and the Group works to mitigate the impact by developing disaster prevention plans at each business location.

If an infectious disease such as COVID-19 or influenza spreads, construction sites may be temporarily suspended, making it difficult to continue normal business activities and potentially affecting business performance. The Group works to mitigate the impact by thoroughly implementing hygiene management and measures such as staggered commuting hours and telework.

The domestic construction market is highly susceptible to economic conditions, and if private capital investment or public investment stagnates more than expected, this could affect the Group's business performance. The Group works to avoid a sharp decline in performance during economic downturns by increasing orders for derivative work such as existing facility work and maintenance work.

If the prices of raw materials for the products and materials handled by the Group surge due to market fluctuations or other factors, this could affect the Group's business performance. The Group works to suppress sharp price fluctuations and stabilize purchase prices by securing multiple suppliers.

In the Environmental Systems business, net sales tend to be skewed toward the second half of the fiscal year, as a higher proportion of construction projects are completed in that period compared to the first half. Due to this structural skew, care must be taken, as first-half performance alone is not an adequate indicator for evaluating full-year performance.

In acquisitions of other companies or capital and business alliances, if the target company's business plan falls short of expectations at the time of acquisition, or if it is determined that expected results will not be achieved due to changes in the business environment, an impairment loss on goodwill may occur, potentially affecting business performance and financial condition. The Group works to avoid this risk by appropriately monitoring the progress of business plans.

There is a possibility that human or physical accidents or disasters could occur at construction sites in the Environmental Systems business. While the likelihood of such risks materializing is considered extremely limited, the Group maintains various insurance policies in preparation for accidents, and the possibility of incurring liability for damages exceeding the scope covered by insurance cannot be ruled out.

If design changes occur during construction, or if construction material or labor costs surge, this could result in unprofitable construction projects that affect business performance, and such occurrences are particularly likely during periods of intense order competition amid economic downturns. The Group works to avoid this risk by conducting order-taking activities that carefully select projects based on completion timing and budget amount information.

In long-term construction contracts, uncertainty in estimating total construction costs arises from factors such as changes in construction conditions, surges in material and equipment prices, and deterioration in work efficiency; if total construction costs fluctuate due to unforeseen events, this could affect operating results and financial condition. The Group works to avoid this risk by reviewing estimated costs and planned construction periods for each project on a timely basis.

If a business partner's financial condition deteriorates and accounts receivable become uncollectible, this could affect the Group's business performance. While the likelihood of this risk materializing and its impact are considered extremely limited, the Group works to avoid this risk through thorough credit management.