TSUKISHIMA HOLDINGS CO., LTD.

In the Water Environment Business, market contraction due to population decline and fluctuations in public investment by local governments may affect business performance. In the Industrial Business, US tariff policy, geopolitical risks, China's economic slowdown, rising raw material prices, foreign exchange fluctuations, and industrial structural changes driven by AI may affect customers' capital expenditure trends. As countermeasures, the company is strengthening public-private partnership businesses such as Water PPP and PFI, expanding fine particle manufacturing technology for lithium-ion secondary batteries, and focusing on semiconductor wastewater treatment equipment utilizing ammonia-related technology.

In addition to fluctuations in foreign exchange rates and crude oil and resource prices, US tariff policy, the prolonged invasion of Ukraine, military conflicts in the Middle East, lockdowns due to infectious diseases, and unexpected changes in laws, regulations, or tax systems may affect the performance of overseas businesses. Given the nature of the business as build-to-order production, the company reduces fluctuation risk by incorporating cost estimation and risk fees for each project and using hedging transactions such as forward exchange contracts for foreign currency-denominated transactions.

Given the business characteristics centered on build-to-order production and plant construction, a wide range of risks exist, including cost increases from estimated costs, additional costs due to design changes, compensation for product defects, damages, price increases in long-term contracts, and delivery delays due to mass employee absence caused by heatstroke or infectious diseases. The company is taking measures such as refining estimation conditions, allocating contingencies, thoroughly implementing front-end loading, setting escalation clauses, and taking out insurance, while also stabilizing its revenue base by strengthening the After-Sales Services & Repair Works business.

Supplier operational shutdowns, bankruptcies, or business closures, shortages or price increases of raw materials and parts, logistics disruptions due to geopolitical risks or regulatory changes, and supply interruptions due to dependence on specific suppliers may have a significant impact on business activities. The company is diversifying procurement sources, appropriately managing inventory levels, and securing alternative suppliers, while also working to reduce risk through information exchange via cooperative company associations.

The risk of leakage of customer and business partner information or confidential business information, destruction or falsification of important data, and system outages due to cyberattacks, unauthorized access, or computer virus infections is increasing, which may affect business performance. Based on the "Information Security Basic Regulations" and "Information Security Countermeasure Standards," the company strives to minimize risk through both human measures such as employee training and continuous improvement of systems.

Due to the declining birthrate, aging population, and decrease in skilled engineers, it may become difficult to continuously secure specialized personnel, which could hinder smooth business operations. Positioning human capital as the foundation of sustainability management, the company invests in recruitment and talent development, and has set "creating an attractive and rewarding workplace environment" as a materiality issue, promoting operational efficiency and productivity improvement through the use of AI.

Reduced demand for the company's equipment and processes due to tightening regulations aimed at decarbonization among existing customers, decreased productivity and construction delays at construction and manufacturing sites due to rising average temperatures, and increased damage and recovery costs from natural disasters may affect business performance. The company has expressed its support for the TCFD recommendations, evaluates the management impact of climate change risks and opportunities, and is advancing decarbonization efforts through promoting energy utilization of sewage sludge and expanding equipment and plants for lithium-ion secondary battery materials.

Under the holding company structure transitioned to in April 2023, if group management effects such as management resource allocation, group strategy, and monitoring and supervision of operating subsidiaries are not sufficiently realized, this could have a significant impact on business performance and financial condition. In addition, since the majority of the holding company's income consists of management guidance fees, service commission fees, and dividends received from operating subsidiaries, it may become difficult to receive dividends if operating subsidiaries fail to record sufficient profits. The company addresses this through cross-functional bodies such as the Sustainability Committee, Compliance Committee, and Crisis Management Committee, along with progress management based on the medium-term management plan.

If large-scale natural disasters such as earthquakes, floods, fires, or snow damage occur at production sites, business offices, construction sites, or business partner facilities, damage to production equipment or products, or reduced or halted production functions due to damage to lifelines, may affect business performance. The company has formulated a business continuity plan (BCP) assuming scenarios such as a major earthquake directly beneath the Tokyo metropolitan area, and enhances the effectiveness of the BCP through regular training.

Tightening of laws and regulations such as the Construction Business Act, Product Liability Act, Measurement Act, and Waste Management Act, as well as the unexpected introduction or revision of laws and regulations, may affect business performance. There is also a risk of damages arising from infringement of intellectual property rights in emerging countries or infringement of third-party intellectual property. The company ensures legal compliance through a management system based on ISO standards, a support framework by the legal department, and the use of external information services, while also building an intellectual property management system in collaboration with external experts.