Risk Factors

There are a number of major risk factors that can potentially affect the Kurita Group's financial performance. These include economic trends, the status and operating ratios of customers' water treatment-related facilities, public sector investment budgets, raw materials prices and competition from other companies in the same industry. Specific factors that can affect our performance, by segment, are described below.

In the Water Treatment Chemicals segment, our business is affected by demand fluctuations determined by the plant operating ratios of our customers in the steel, oil, and pulp and paper industries. In the Water Treatment Facilities segment, our business is influenced mainly by demand fluctuations resulting from capital expenditures in the electronics industry, a major source of demand. Also impacting this segment are public sector-related factors, such as the financial condition of regional government entities and their budgetary practices.

In addition, sales and earnings in the Water Treatment Facilities segment are generally concentrated in the second half of the fiscal year. This reflects revenue accounting based on work-in-progress standards and the completion of large-scale projects, centering on public sector demand, which are weighted disproportionately toward the end of the financial year, causing operating income from such projects to be concentrated in the second half. Risk Factors