NIPPON FELT CO.,LTD..

Approximately 80% of net sales are attributable to the paper and pulp industry, meaning that a demand decline or market downturn caused by a recession in that industry, as well as intensifying competition among papermaking equipment manufacturers, directly affects business performance. There is also a bad debt risk should a major customer experience business continuity issues. In response, the Company is working to improve profitability, mainly through reducing the cost ratio, with the aim of building a robust earnings structure.

Many of the raw materials used are petroleum-derived, creating risk of price increases and procurement disruptions due to the impact of the situation in the Middle East. In addition, the sources of supply for certain specialty raw materials are limited, creating a risk of dependence on specific suppliers. The Company addresses this through building up raw material inventories and diversifying procurement sources, but depending on supply conditions and price trends, business performance could be affected.

Production activities are centered on the Saitama Plant and Tochigi Plant as main bases, and any production disruption or delay caused by a natural disaster or fire could have a material impact on business performance. Earthquake insurance is maintained against earthquake damage, but the scope of coverage is limited. The concentration of production in a single region remains an ongoing risk factor.

Amid a declining working-age population due to the falling birthrate and aging society, there is a risk that the Company will be unable to secure the necessary personnel due to an aging workforce, employee turnover, and intensifying competition in the labor market, which could stall business activities. The Company strives to secure personnel through promoting health management, preventing turnover via a mentor system, utilizing senior personnel, and expanding mid-career hiring. A business structure centered on domestic locations heightens exposure to this risk.

Increasingly sophisticated cyberattacks, unauthorized access, virus infections, and the like could result in the compromise of information assets or system outages, leading to business interruption and impacting performance. The Company has established an information security policy and works to ensure the effectiveness of its systems, but unforeseen incidents cannot be completely ruled out. System failures caused by natural disasters and similar events are also recognized as a comparable risk factor.

Natural disasters and extreme weather associated with climate change could disrupt the procurement of raw materials and the energy needed for manufacturing processes, potentially impeding product supply. In addition, social and political changes associated with climate change could push up the cost of procuring raw materials and fuel, creating a risk that could affect business performance. Given the nature of the papermaking equipment manufacturing business, dependence on energy and raw materials is high, resulting in significant risk exposure.

Changes in financial market conditions, such as a sharp rise in interest rates or fluctuations in exchange rates, could affect business performance. The cost of procuring petroleum-derived raw materials is highly susceptible to exchange rate fluctuations, and rising interest rates would lead to increased funding costs. There is no explicit disclosure in the securities report regarding specific hedging measures.

The Company holds marketable securities, and a significant decline in share prices could affect business performance and financial position through a decrease in valuation differences on other securities or the recognition of valuation losses. Depending on the scale and composition of the shares held, the impact could be substantial should this risk materialize.

Rent reductions caused by factors such as the aging of leased properties could affect business performance. The Company strives to maintain rents through appropriate, timely maintenance, but deterioration of properties over time is unavoidable and entails ongoing management costs. Since rental income constitutes part of overall revenue, any reduction directly leads to a decline in earnings.

Although the Company strives to comply with laws and regulations in the course of its business operations, it recognizes that litigation risk cannot be entirely eliminated. Should litigation arise, the resulting damages and response costs could affect business performance. There is no explicit disclosure in the securities report regarding any specific ongoing disputes.