NITCHO CORPORATION

While the company has established a rigorous quality control system across all processes—design, procurement, manufacturing, and installation—to address risks such as electrical leakage or gas leaks, if a product-related accident were to occur and result in compensation liability to customers, this could lead to a decline in social reputation and corporate image, reduce order intake, and have a material impact on business activities. The company provides customers with guidance on routine inspections, adopts safety devices, and implements rapid cross-departmental response when complaints arise.

In addition to the general construction business license under the Construction Business Act, the company is subject to a wide range of laws and regulations including the Industrial Safety and Health Act, the Product Liability Act, and the Antimonopoly Act. If the company is deemed by authorities to have violated these laws, it could be subject to administrative dispositions such as license revocation or business suspension, criminal penalties, or damages lawsuits from business partners, potentially damaging its creditworthiness and worsening its financial condition. The company addresses this through dissemination of its corporate ethics code and code of conduct, establishment of Antimonopoly Act compliance guidelines, and appropriate operation of its internal control systems.

Large-scale projects for government offices and school lunch centers are often constructed during summer vacation periods, resulting in a structure where sales concentrate in the fourth quarter (in FY2025 (ended September 2025), fourth-quarter net sales were ¥6,632 million, or 36.6% of the total). If delays in building construction work or other factors cause acceptance inspections to be deferred to a later period in the fourth quarter, there is a possibility that the fiscal year's results will need to be revised downward. As a countermeasure, the company has begun reforming its revenue structure by strengthening efforts to secure projects with acceptance inspections before Golden Week or in March.

Regarding key raw materials such as stainless steel, electronic components, pumps, and motors, stainless steel prices have been trending upward in recent years, and there are concerns that the materialization of geopolitical risks could lead to further increases in raw material prices or difficulty in securing stable procurement. If the company is unable to sufficiently secure alternative suppliers, reduce manufacturing costs, or pass on costs to sales prices, this could affect business results. As countermeasures, the company is implementing design flexibility to switch to alternative components, securing multiple suppliers, and comprehensive manufacturing cost reduction measures.

The company's management policy calls for improving the skills of development, production, and sales staff and securing new personnel in order to strengthen product and sales capabilities. However, if the company is unable to adequately secure appropriate personnel, or if the departure of existing employees prevents it from building sufficient development and sales structures, it may become difficult to maintain order intake share, potentially hindering business results and the achievement of future business plans.

Proprietary products have a higher gross profit margin than third-party products, but over the past three years the sales composition ratio of proprietary to third-party products has remained at approximately 3:7. If product development does not proceed as planned and the proportion of proprietary product sales remains sluggish, the company may face difficulty achieving its planned profit under the medium-term profit plan or the single-year budget, even if planned sales are secured. The company is systematically promoting the enhancement of its lineup and quality performance through proprietary product development.

While the company conducts monthly receivables collection procedures, including confirming changes to scheduled collection dates and checking for unpaid amounts, if a sudden deterioration in the economic environment or a business partner's financial condition leads to bankruptcy or worsening performance of that partner, resulting in bad debts or delayed collection of receivables, this could affect the company's financial condition and business results.

The company operates manufacturing plants in Tochigi and Oita prefectures, and has previously been affected by the Great East Japan Earthquake (2011) and the Kumamoto Earthquake (2016). Large-scale natural disasters or the outbreak of infectious diseases could cause delivery delays, decreased sales, direct damage to employees and production facilities, and indirect damage such as disruption of information systems or material procurement networks, potentially having a material impact on business results and financial condition. The company is enhancing and strengthening its risk response system through measures such as disaster drills, but notes that it is difficult to avoid all such risks.

Demand from major customers—schools and hospitals (for government offices) and business establishments (private sector)—is affected by changes in public investment policy, subsidy programs, and economic conditions, causing fluctuations in the number and scale of orders received. While the company is focusing on uncovering demand for individual equipment replacement at aging kitchen facilities and securing orders for new equipment, if it is unable to secure orders as anticipated, this could affect business results.

The gross profit margin on direct sales is higher than that on indirect sales, and the ratio of direct to indirect sales has remained at approximately 6:4 over the past three years. However, if indirect sales via general contractors, subcontractors, dealers, or local companies increase due to customer preference, the resulting decline in gross sales margin could affect business results. The company addresses this by continuing sales activities aimed at securing direct contracts.