Puequ CO.,LTD.

As of the end of August 2025, the ratio of interest-bearing debt to total assets stood at 44.9%, and the equity ratio was 28.2%, indicating a relatively high level of financial leverage. The Group relies primarily on financial institution borrowings to fund capital expenditures, and a further decline in the equity ratio is anticipated should business plans fail to be achieved. For borrowings at variable interest rates, a rise in interest rates would increase interest expense burdens, potentially having a direct impact on operating results and financial condition.

The Group's business performance is highly correlated with corporate capital expenditure demand, and there is a risk that customer purchasing appetite may decline due to deterioration in the economic environment. The Environment & Energy business is strongly dependent on corporate capital expenditure trends, while the Power & Heavy Machinery business is strongly dependent on raw material prices and trends in the shipbuilding industry. In the Disaster Prevention & Safety business, changes to or abolition of government subsidy programs and changes in the scope of installation obligations due to revisions to the Fire Service Act are also factors that could cause fluctuations in business performance.

At consolidated subsidiaries Sanwa Tekko Co., Ltd. and Toyo Seiki Sangyo Co., Ltd., raw material prices are directly linked to manufacturing costs, creating a structure in which cost fluctuations readily affect business performance. Some of the materials and equipment procured from suppliers are subject to price surges due to market fluctuations, and a sharp rise in market prices could impact the Group's operating results. Where cost pass-through is difficult, this could lead to pressure on profit margins.

In the Disaster Prevention & Safety business, some installation projects for the "Naias" Sprinkler Fire Extinguishing System utilize national and local government subsidies under the "Subsidy Program for Sprinkler and Related Facility Development at Clinics with Beds and Similar Facilities." In addition to the risk of shifts in revenue recognition timing or lost orders due to failure to be selected for subsidies, if changes to or abolition of the subsidy program cause customer purchasing appetite to decline, this could have a direct adverse effect on sales in this business. The Group is working to reduce its dependence on such programs by diversifying sales channels, including increasing sales staff and expanding sales through agencies.

The Group manufactures and sells equipment related to environment and energy, power and heavy machinery, and disaster prevention and safety, and positions product safety as a top-priority issue. However, the possibility of quality problems arising in areas beyond the Group's control, including at sales partners, suppliers, and manufacturing subcontractors, cannot be eliminated, and if production is discontinued or damages are claimed, substantial costs could be incurred. A decline in brand reputation and credibility could also lead to a loss of order opportunities over the medium to long term.

Under contracts for water treatment facility construction, fire-fighting equipment construction, and marine and plant equipment construction, revenue is recognized based on the percentage of completion calculated from estimated total costs, making the accuracy of cost estimation directly linked to business performance. If changes to the scope of work occur after construction has begun, or if equipment, material, or outsourcing prices fluctuate, there is a risk that the estimated total cost will rise, deteriorating profitability. Although the Group continuously reviews estimated total costs and manages costs on a project-by-project basis, this risk cannot be entirely eliminated.

The Group regards M&A as one option for business expansion aimed at growing its business scale and diversifying revenue sources, and strives to reduce risk through due diligence. However, there is a possibility that anticipated synergies or business expansion effects may not be achieved, and risk factors specific to new business areas may also arise. If performance deteriorates after a company becomes a subsidiary, or if amortization or impairment of goodwill occurs, this could impact the Group's operating results and financial condition.

The Group is subject to legal regulations including the Product Liability Act, the Basic Act on Intellectual Property, the Construction Business Act, and the Fire Service Act, and holds multiple construction business licenses granted by the Minister of Land, Infrastructure, Transport and Tourism and the Governor of Kagawa Prefecture. If related laws and regulations are revised, new legal regulations are established, or compliance failures occur for any reason, there is a risk of license revocation or business suspension orders. As of the reporting date, no violations giving grounds for license revocation have reportedly occurred.

Tetsuji Kiyama, Chairman and Representative Director, has served as a director since the Company's founding as its founder, and possesses extensive experience and knowledge in the wholesale distribution and technical services of water treatment equipment, playing an extremely important role in determining and executing management policy and business strategy. If he becomes unable to continue his duties for any reason, this could impact the Group's operating results. While the Group is working to reduce its dependence on him by strengthening information sharing at the Board of Directors and other bodies and improving its management organization, the establishment of a succession framework remains a work in progress.

The Group recognizes that continuous recruitment of excellent personnel with technical and planning capabilities is essential as business expands; however, if securing personnel meeting recruitment standards does not proceed as planned, there is a risk that product competitiveness and the ability to respond to customer needs could decline. If personnel development does not proceed as planned, this could similarly impact business performance. Although the Group has adopted a policy of strengthening recruitment activities and actively pursuing personnel development, intensifying competition in the labor market remains a challenge.