METAWATER Co., Ltd.

Fluctuations in domestic and overseas political and economic conditions, including in North America and Europe, may affect business performance through exchange rate volatility, price inflation, and supply chain disruptions. Escalating tensions in the Middle East could lead to shortages and price surges in crude oil and petrochemical products, risking delivery delays and increased manufacturing costs. As countermeasures, the Company continuously monitors market conditions, regulations, and economic indicators in each country to take early action, and is working on stockpiling products and negotiating prices with customers.

If a large-scale natural disaster (earthquake, heavy rain, typhoon, flood, etc.) occurs, business performance may be affected by construction interruptions or damage to facilities at construction and operation/maintenance sites. Given the high proportion of public-sector business and nationwide operations, a pandemic outbreak could result in construction suspensions/cancellations and halted operation/maintenance work, posing risks of significant impact on customers and local residents as well. The Company has established a business continuity framework through BCM regulations, BCP formulation, and regular BCP drills at each site.

Given the high proportion of public-sector business, the Company is subject to legal regulations such as the bidding system and the Construction Business Act; any legal violation could result in suspension from bidding or revocation of construction business licenses, significantly affecting business performance. With the increase in overseas subsidiaries accompanying overseas business expansion, deficiencies in internal controls could greatly impact the performance of overseas operations. The Company addresses this through the establishment and operation of compliance regulations and programs, and by strengthening monitoring through the dispatch of seconded personnel to overseas subsidiaries.

In addition to the increasing sophistication of cyberattacks and computer viruses, new risks are of concern, such as leakage of confidential information through AI use and the spread of misinformation due to the inaccuracy of AI-generated information. Failures or improper use of information systems could disrupt operations and affect business performance. The Company manages this through the establishment of an information security policy and AI usage standards, a response framework led by the Chief Information Security Officer in the event of an incident, and regular reporting to the Board of Directors.

Because the budget execution deadlines for public works are concentrated at the fiscal year-end, delays in preceding civil engineering or construction work may prevent the Company's own construction work from being completed within the deadline. Delays in construction periods pose a risk that directly affects business performance. The Company monitors changes in customer and related construction conditions through the establishment of standards for each product and technology and regular reviews by relevant departments, and negotiates to ensure completion within deadlines.

Securing engineers in accordance with the Construction Business Act is important in public-sector business, but the declining population due to the falling birthrate and aging society may make it difficult to secure engineers, affecting business performance. A shortage of engineers directly reduces order-taking capacity, posing a risk. Based on its "HR Philosophy," the Company aims to become the "No. 1 Company to Work For" and is implementing work-style reform, education, and support initiatives.

In bidding for public works centered on the water and sewerage business, intensified competition due to rising procurement costs or the introduction of new products by competitors could lead to a decline in order intake and deteriorating profitability. Since bid price, technical capability, and business performance directly determine contract awards, maintaining competitiveness is a key challenge. The Company addresses this through company-wide R&D promotion led by the Development Strategy Committee and rationalization/cost reduction through the adoption of engineering tools.

If an occupational accident occurs at a construction site involving mechanical or electrical equipment, it not only threatens employee safety but may also result in a suspension of eligibility to bid imposed by customers (local governments), causing a loss of order opportunities for a certain period and affecting business performance. The Company works to improve safety and health through the establishment of safety and health management regulations and related rules, and through the determination of safety policies and priority action items by the company-wide Safety and Health Committee.

In the provision of products, systems, and services, if a quality issue arises due to unforeseen events, it could cause significant inconvenience to customers (local governments) and incur costs related to recovery and restoring trust, affecting business performance. The Company addresses this through the establishment of quality control regulations and related rules, and through the determination of quality policies and priority measures as well as the management and sharing of quality status by the company-wide Quality Assurance Committee.

The Company outsources ceramic membrane manufacturing, switchboard manufacturing, and other work to major shareholders NGK Corporation (19.74% voting rights ownership) and Fuji Electric Co., Ltd. (20.84%); if transactions are not conducted appropriately, business performance could be affected. The Company strives to ensure the soundness and appropriateness of transactions through deliberation by administrative departments based on authority regulations, post-transaction checks by audit & supervisory board member audits and internal audits, and annual reporting of transactions to the Board of Directors.