WATANABE SATO CO., LTD.

The Group's core businesses are road paving works and general civil engineering and construction works. If significant restraining factors arise in public investment by government agencies or in private-sector capital investment, order volume may decline, potentially affecting operating results. Because trends in public investment are subject to policy changes and fiscal conditions, the risk of demand fluctuation is ever-present. As a countermeasure, the Group strives to improve management efficiency through early identification of investment trends in the public and private sectors and optimal allocation of personnel in response to construction demand.

If the purchase price of straight asphalt, a key raw material, rises, or if materials and equipment prices increase due to supply-demand tightness caused by sharp demand fluctuations, this may adversely affect operating results in cases where such cost increases are difficult to pass through to product prices. In the paving and civil engineering works segment as well, rising materials and equipment costs directly compress profit margins. As a countermeasure, the Group continuously monitors raw material price trends and conducts early cost reviews to minimize the impact.

If customers default with respect to accounts receivable from completed construction contracts, loans, other receivables, or rights of indemnity, the occurrence of bad debt losses, among other factors, may affect operating results. Because the construction business structurally collects payment after work is completed, there is an inherent risk of delayed collection of receivables. As a countermeasure, the Group strives to control credit risk by strictly determining whether to accept orders based on its credit management regulations and by strengthening receivables management.

The Group is subject to legal regulations such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, and future amendments to laws or the establishment and application of new regulations may affect operating results. In particular, tightening of safety regulations or competition law regulations related to the construction industry carries the risk of increased costs and business constraints. As a countermeasure, the Group appropriately collects and analyzes trends in relevant laws and regulations and takes appropriate action centered on relevant departments.

If a large-scale natural disaster such as an earthquake occurs near a business site or asphalt mixture plant and damages production facilities, this may affect operating results through decreased sales and the incurrence of facility restoration costs. Asphalt mixture plants serve as supply bases for paving works, and a suspension of operations due to a disaster would directly impede business continuity. As a countermeasure, the Group has formulated a company-wide BCP and region-specific earthquake and disaster manuals, and continuously conducts training and implements necessary measures in preparation for large-scale disasters.

If cyberattacks, computer virus damage, or leakage or loss of personal information due to negligence or unauthorized access by officers or employees occur, this may affect operating results through damage to social credibility and the incurrence of damages compensation and restoration costs. Cyber risk has been rising across industries amid the progress of digitalization. As a countermeasure, the Group manages and maintains its core systems at a data center, has established information security regulations, and conducts regular system audits and security education.

Sato Kogyo Co., Ltd., the largest shareholder (holding 20.84% of voting rights), is another affiliated company of the Company, and the Company undertakes paving and civil engineering works as an equity-method affiliate of Sato Kogyo. As a related-party transaction, there is a risk that the interests of shareholders as a whole could be harmed if the fairness of transaction terms and management of conflicts of interest are not appropriately handled. As a countermeasure, transaction terms are determined through individual negotiations based on the same standards as ordinary transactions, and appropriate transaction management is ensured through an approval framework established in accordance with internal regulations.