Management Risks

The following business and accounting factors in relation to the operations of the Tsukishima Kikai Group have the potential to impact significantly on decisions by investors. Factors related to future predictions and forecasts are based on conditions as at March 31, 2007.

1. Market demand and business environment

The Tsukishima Kikai Group provides Water Environment business such as water purification plants and sewage treatment plants mainly to local government, which are subject to fluctuations in public funding levels. These fluctuations have the potential to impact on the business performance of the Water Environment business division.
Similarly, the Industrial Business division is subject to the impact of changing levels of plant and equipment investment by major clients in industries such as chemicals, steel and foodstuffs.

2. Risks related to overseas business

Overseas business of the Tsukishima Kikai Group is increasing in recent years,but it may be affected by a variety of external factors such as exchange rates, domestic political unrest and terrorist activity, abrupt changes in economic circumstances, and unanticipated amendments to regulations and taxation requirements.

3. Accidents and incidents involving equipment manufacturing and installation

Business performance may be affected by accidents and incidents or unforeseen phenomena occurring at plants that are already built or still under construction by Tsukishima Kikai Group, or at production facilities used to manufacture by Tsukishima Kikai Group.

4. Features of Tsukishima Kikai Group businesses

TSK's business style is based on production to order. This means that the actual cost of production may be higher than the original contract quotation due to increases in material procurement costs and outsourcing expenses, and changes in the supply and demand balance. Installation is similarly subject to factors such as design changes and modifications during construction, which can generate additional costs. All of these can affect the overall business performance of the Tsukishima Kikai Group.

5. Stock market fluctuation

The business performance of the Tsukishima Kikai Group is affected by abrupt changes in market prices for shares and other investment securities held by the Company.

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