Kanadevia Corporation

In individual order projects, including EPC (engineering, procurement and construction) for waste-to-energy facilities, which is a core business, if costs exceed the estimated cost at the time of order receipt, delivery is delayed due to schedule slippage, or penalties arise from technical or product troubles, profitability may deteriorate, potentially having a material impact on the Group's financial position, business performance, and cash flows. As countermeasures, the Group conducts pre-order risk review meetings, ongoing monitoring through monthly follow-up meetings, management of important projects at Top Management Review meetings chaired by the President, and horizontal deployment of lessons learned through project outcome reporting meetings after construction completion.

Following the discovery of improper conduct at a consolidated subsidiary engaged in the marine engine business, a Special Investigation Committee was established in July 2024. As a result of its investigation, it was disclosed in March and April 2025 that improper conduct had also occurred in some other businesses and products. If unexpected product or service defects or quality misconduct occur, this may adversely affect the Group's financial position, business performance, and cash flows through payment of damages and loss of social trust, among other factors. Based on the recommendations of the Special Investigation Committee, the Group is formulating and implementing more effective recurrence prevention measures and working to restore trust.

While the Group has implemented measures such as establishing the "Kanadevia Group Charter of Corporate Behavior" and setting up a Compliance Committee, if legal violations occur, this may adversely affect the Group's financial position, business performance, and cash flows through payment of fines, surcharges, or damages, administrative sanctions such as business suspension or disqualification from bidding, and loss of social trust. The Group positions thorough compliance as one of its most important management priorities and continuously conducts regular compliance training and maintains an internal whistleblowing system.

Major products and businesses such as waste-to-energy facilities, marine engines, automotive press machines, and various process equipment including pressure vessels, as well as bridges, operate in mature markets with many competitors, and order prices have been on a downward trend. Intensifying competition due to a decline in new projects may cause order prices to fall further, potentially adversely affecting the Group's financial position, business performance, and cash flows. As countermeasures, the Group is working to differentiate its products through the development of new technologies and enhanced after-sales service, and to improve competitiveness through fixed cost reductions in personnel and other expenses and transformation of its fixed cost structure.

The Group's products and construction work often use steel, non-ferrous metal products such as stainless steel, and petroleum products, and if the prices of these materials and secondary products rise, this may adversely affect the Group's financial position, business performance, and cash flows through cost increases leading to deteriorating profitability and reduced price competitiveness. The Group is working to reduce material costs by centralizing material procurement functions and strengthening group procurement and joint purchasing, but it is difficult to completely eliminate the risk of market price fluctuations.

In the environment business, the Company is responsible for Southeast Asia, China, and India, while Kanadevia Inova AG. is responsible for the rest of the world, and in the machinery business, the Group operates globally. If risks materialize due to unexpected political instability, US-China trade issues, differences in culture and legal systems, or unique labor relations, this could hinder smooth business operations and adversely affect the Group's financial position, business performance, and cash flows. Regarding the situation in Russia and Ukraine, while the Group does not currently anticipate a significant impact on its business performance, it intends to respond appropriately while carefully examining compliance risks and commercial risks.

The Group's business structure has a high proportion of domestic projects, which are expected to shrink going forward. Under the medium-term management plan "Forward 25," the Group is promoting sustainable growth of overseas business, business structural reform, expansion of continuing businesses, and profitability improvement of newly established businesses. If these reforms do not progress, the Group may fail to secure or improve profitability, potentially adversely affecting its financial position, business performance, and cash flows. Even in the domestic market, where the Group holds a solid position in the public-sector environment business, building a more stable business structure remains a challenge.

The Group is strengthening its financial position mainly through the reduction of interest-bearing debt, and hedges interest rate and foreign exchange fluctuation risks in accordance with internal management regulations. However, if interest rates rise or exchange rates fluctuate more than expected, this may adversely affect the Group's financial position, business performance, and cash flows. As overseas business expands, transactions affected by exchange rate fluctuations are increasing, and situations may arise in which the effectiveness of hedging measures is called into question.

If the market value of fixed assets held by the Group declines significantly, or if business losses continue, this may adversely affect the Group's financial position and business performance through the recognition of impairment losses on fixed assets. In addition, deferred tax assets recognized based on estimates of future taxable income may need to be written down if determined to be unrecoverable, which may adversely affect the Group's financial position and business performance.

If unexpected large-scale human or physical damage occurs due to various disasters such as earthquakes, typhoons, or pandemics, the suspension of business activities may adversely affect the Group's financial position, business performance, and cash flows. The Group strives to strengthen its response capability in emergencies by formulating business continuity plans (BCP) at major domestic sites, conducting regular training, and introducing and operating a "safety confirmation system," but there are limits to responding to unexpected large-scale disasters.