SANKI SERVICE CORPORATION

Sales tend to be concentrated in the second and fourth quarters, when equipment repair and equipment replacement work is concentrated, while fixed costs (selling, general and administrative expenses) are incurred on a constant basis, resulting in a significant skew in profit between quarters. In the 48th fiscal year, the combined operating profit for the second and fourth quarters was ¥1,156,862 thousand (note: unit discrepancy in the source; the original figure is denominated in thousands of yen), accounting for 113.3% of the full-year operating profit of ¥1,020,734 thousand. Although full-year results are stable, a deterioration in performance in a specific quarter could affect investor judgment.

In the results for the 48th fiscal year, Lawson, Inc. accounted for 12.5% of the Group's net sales, indicating a high degree of dependence on a specific customer. If relations with this customer deteriorate, or if business transactions are terminated or orders are lost, this could have a direct and material impact on business performance. The Group is currently working to diversify its client base, but reducing this dependence will take time.

The Group provides nationwide services by combining its own maintenance engineers with outsourcing to specialized technical partners. If the Group is unable to secure and train employees with specialized skills as planned, or if it becomes difficult to develop specialized partners, this may result in a decline in service quality. A decline in service quality directly leads to a loss of customer trust and may adversely affect business performance.

The maintenance market has numerous competitors of various sizes, including construction contractors and manufacturer-affiliated maintenance companies, and there is a risk that competitiveness may decline due to industry restructuring, new entrants, or the emergence of new technologies. In addition, if customers of the Total Maintenance Service business establish new in-house maintenance departments or spin off such functions to bring maintenance in-house, business transactions may be terminated, affecting performance. The Group strives to maintain competitiveness by training in-house engineers and strengthening its capability to handle a wide range of equipment.

Regarding the core system introduced in September 2019, if server downtime occurs due to unforeseen causes such as line failures, unauthorized access, natural disasters, or accidents, this may result in delays in billing operations and other issues that affect business performance. The Group implements risk diversification and maintenance management in cooperation with the system vendor, but it is difficult to completely eliminate the risk of failure.

If facilities or functions are suspended due to natural disasters such as earthquakes or typhoons, or due to human or material accidents, the Group may become unable to provide equipment maintenance and equipment installation services, resulting in losses. Furthermore, if a service technician is involved in a serious accident or industrial accident, this could have a significant impact on the Group's social credibility and adversely affect its financial condition and business results. The Group strives to prevent accidents through thorough safety education, but it is difficult to reduce this risk to zero.

In the overseas businesses operated by the Group, there are a wide range of risks, including changes in social, political, and economic conditions, unexpected changes in regulations or tax systems, credit risk arising from differing business customs, changes in the labor environment and difficulty in securing human resources, and foreign exchange risk. If these risks materialize, it may become difficult to provide services, which could affect business performance. The Group has established a system to promptly obtain information from accounting firms and other sources and to take early countermeasures.

The Group is subject to environmental laws and regulations related to air pollution, hazardous substances, waste, product recycling, soil contamination, and other matters, and if environmental cost burdens or liability for damages arise, this may affect business performance. In addition, if there are changes to the qualification requirements for participating in bids for government and municipal projects, or if the designated administrator system leads to a change in the management operator, there is a risk of loss of bidding opportunities or inability to secure orders.

The Group provides maintenance services as a designated manufacturer service outlet for Panasonic group companies, and a decline in sales of large air-conditioning equipment manufactured by Panasonic would directly lead to a decrease in demand for the Group's maintenance services. In addition, since maintenance service prices are determined based on the price list presented by Panasonic group companies, a significant downward price revision in that price list could have a direct adverse effect on the Group's business performance.