SUIDO KIKO KAISHA,LTD

The water supply penetration rate has reached nearly 100%, and the market has matured. While there is certain demand from renewal and improvement work on aging facilities, there is no guarantee that current demand levels will continue in the future. The Group is promoting demand stimulation through new technologies and products, as well as diversification into the private-sector and overseas fields, but depending on the progress of these initiatives, business performance may be affected.

The Group has a highly public-sector-dependent structure, with sales to national and local governments accounting for approximately 90% of total sales. There is a risk that reductions in public works budgets or the shrinking of business scale due to municipal mergers could directly affect business performance. Progress in wide-area management of water supply operations and public-private partnerships, as well as unforeseen circumstances, could also lead to a decrease in order opportunities.

Receiving orders from major customers is fundamentally conditional on winning bids, and as the importance of comprehensive evaluation-type bidding systems increases, unforeseen changes to the system or a significant decline in bid prices due to intensifying competition may affect business performance. The Group must maintain participation requirements such as construction track record, technical capabilities, and financial condition, while also strengthening price competitiveness.

Due to factors such as reductions in public works spending, price competition in the water treatment business is already severe, and further intensification of competition is possible in the future. While the Group has maintained technological superiority as a pioneer in the industry, there is no guarantee that this advantage can be maintained going forward, and continuous efforts to strengthen cost competitiveness are necessary.

Water supply facilities are highly reliable products for which ensuring human safety is the top priority. If an unforeseen defect or accident occurs, the Group could be held liable for direct or indirect damages to customers. In addition, a significant decline in social trust could reduce purchasing willingness, posing a risk of material impact on business performance and financial condition.

The Group operates as a licensed business subject to various legal regulations, including the Construction Business Act, and faces the risk of administrative dispositions in the event of a violation of the Construction Business Act. The Group is also subject to environmental laws and regulations such as those concerning air pollution, water pollution, and waste disposal, and unforeseen changes to laws and regulations could affect business performance.

If business offices, sales locations, factories, or worksites suffer catastrophic damage due to natural disasters such as earthquakes, delays or suspension of business activities may occur. This could result in substantial costs for facility repair or replacement, as well as delayed revenue recognition due to construction delays, posing a risk of compound impact on business performance and financial condition.

Since revenue from plant construction is recognized in accordance with the satisfaction of performance obligations over a certain period, business performance fluctuates depending on the timing of delivery of large-scale or high-margin construction projects. There is also seasonal variation, with sales concentrated in the second half compared to the first half of the fiscal year, and if construction delays due to natural disasters or other causes extend beyond the fiscal year-end, there is a risk that performance for that period could decline significantly.

The Group's management strategy includes expanding overseas business with a focus on Southeast Asia, but it may be exposed to risks such as unforeseen changes in local laws and regulations, political and economic instability, and exchange rate fluctuations. Should these risks materialize, business performance and financial condition may be affected.

The Group provides debt guarantees for certain affiliated companies, and if a situation arises in the future requiring the Group to fulfill its guarantee obligations, this could affect the Group's financial condition and business performance. This risk also encompasses potential impacts on financial condition arising from changes in actuarial assumptions, such as the discount rate, used in calculating retirement benefit obligations.