Premium Water Holdings,Inc.

As of the end of FY2026 (ending March 2026), interest-bearing debt (including lease obligations) stood at ¥77,786 million, with a debt dependency ratio of 57.5%, a high level. Turmoil in financial markets or a sharp rise in market interest rates could make refinancing difficult and increase interest expenses. In addition, if the Company breaches financial covenants attached to a portion of its borrowings, it could lose the benefit of the grace period and be required to make immediate repayment, which could have a material impact on its financial position and cash flows.

The Fujiyoshida Plant is a key production base for the Group, and a long-term suspension of operations due to damage, water source depletion, natural disaster, or other causes could have a material impact on business performance. Although production and shipment could be shifted to alternative sites, full substitution is difficult given the Group's high reliance on this plant. Furthermore, if the water intake permit (966 tons per day) granted under Fujiyoshida City's groundwater conservation ordinance is revoked, production activities themselves would become impossible.

Production activities at the Company's own plants (Fujiyoshida, Asago, and Gifu-Kitagata) require business permits under the Food Sanitation Act. If a violation of laws and regulations, failure to meet water quality standards, absence of a food sanitation manager, or similar issue is identified, the permit could be revoked or business operations could be suspended. At present, there are no facts that would constitute grounds for revocation or suspension, but a significant change in water quality due to natural or man-made disasters could also serve as grounds for permit revocation. The permits for each plant have expiration dates ranging from 2027 to 2031.

Amid the continuing upward trend in logistics costs, if such cost increases cannot be offset through production rationalization or price pass-through, this could affect business performance and financial position. On the other hand, passing on higher delivery charges to selling prices could worsen the cancellation rate, resulting in a decline in the number of contracts held. If multiple delivery companies were to suspend operations simultaneously, or if delivery routes were to be disrupted for an extended period, delivery of products and goods could become difficult until an alternative provider is secured.

If new customer acquisition does not proceed as planned, or if the cancellation rate for existing customers rises above planned levels, business performance could be affected. The Group employs a variety of sales methods, including demonstration sales, telemarketing, and corporate sales, but sales opportunities could also decrease due to competitors monopolizing venues or sales staff violating rules. If public distrust were to spread across the industry as a whole, reputational damage could occur, potentially having a material impact on business performance and financial position.

Demonstration sales, door-to-door sales, and similar activities are subject to the Act on Specified Commercial Transactions. If a violation occurs, or conduct that could be mistaken for a violation occurs, the Group could become subject to administrative guidance or a business suspension order. Although the Group regularly conducts compliance training and provides guidance to distributors, inadequate responses to future legal amendments or new legislation could also impede business operations.

If a malfunction or outage occurs in the core sales management system, it could have a material impact on order receipt, shipment, billing, and inventory management. There is also a risk of information leakage or data damage/loss due to cyberattacks on the cloud infrastructure, internal misconduct, or configuration errors. Although the Group has implemented measures such as remote backups and access controls, complete protection is difficult to achieve. If a personal information leak occurs and costs exceed the amount covered by insurance, this could have a material impact on business performance and financial position.

If water quality deteriorates or water volume becomes insufficient due to a natural disaster or other causes, securing alternative water sources or constructing new plants and making capital investments would become necessary, potentially causing a substantial increase in manufacturing costs. In addition, a surge in oil prices, a raw material for PET bottles, could also be a factor pushing up costs. Some raw materials, including those for water servers, depend on specific suppliers, and procurement disruptions or price increases caused by a global resource shortage or a surge in demand could also affect business performance.

Hikari Tsushin, Inc. and its group hold 70.1% of the Company's total issued shares (including indirect holdings) and is the parent company. Although the Company maintains an independent management structure, any future change in the management policy of the Hikari Tsushin group could have a material impact on the Group's business performance and financial position. In addition, the risk that the tradable share ratio falls below the listing maintenance criteria also stems from the parent company's high shareholding ratio, and if the Company were designated as a securities under supervision or delisted, this could result in a decline in social credibility and affect fundraising.

Products sourced mainly from the Shizuoka, Nagano, Nara, Shimane, and Kumamoto water sources are supplied under OEM contracts. If a serious problem arises with the water quality or plant facilities of an OEM supplier, or if a contract is unexpectedly terminated, this could have a material impact on the production system and business performance. The Group conducts water quality testing, verification of production systems, and company due diligence when entering into OEM contracts, and maintains good business relationships, but securing an alternative supplier would require a certain amount of time.