NITTO SEIMO CO., LTD.

The Group's core business—manufacturing and sale of fishing nets and sale of fishery-related products—is directly affected by the business conditions of fishery operators. Declines in catch volumes due to abnormal weather and changes in the marine environment, declines in fish prices due to increased imports of fish and changing consumer preferences, and increases in fishery operators' business costs due to high crude oil prices all place pressure on fishery operators' businesses. Deterioration in fishery operators' business conditions may lead to reduced purchases of the Group's products and prolonged collection periods for trade receivables, which could adversely affect the Group's business performance and financial condition.

There is a risk that catch limits and fishing bans imposed by international ocean management organizations and domestic fishery organizations may reduce demand for fishing nets and other products through the scaling back of fishery operators' operations. Stricter regulations may reduce fishery operators' willingness to invest in equipment, potentially having a direct adverse impact on the Group's product sales. The Group records an allowance for doubtful accounts to address the risk of concerns over the collection of trade receivables.

There is a risk that the collection of trade receivables may be prolonged due to the deterioration of fishery operators' business conditions. Currently, the Group addresses this collection concern risk by recording an allowance for doubtful accounts; however, if fishery operators' business conditions deteriorate further, additional allowances may become necessary, which could adversely affect the Group's financial condition. Defaults on trade receivables could affect both business performance and financial position.

The majority of raw yarn, the primary raw material for fishing net products, is dependent on petroleum refined products, and a surge in crude oil prices directly leads to higher raw material procurement costs. Rising raw material costs increase product manufacturing costs and may adversely affect the Group's business performance and financial condition. Crude oil market conditions are influenced by geopolitical risks and international supply-demand trends, making this an external factor that is difficult to control.

The proportion of the Group's interest-bearing debt to total assets remains at a high level, and if market interest rates rise, financing costs will increase. In a rising interest rate environment, increased borrowing costs could put pressure on earnings and adversely affect the Group's financial condition. The high ratio of interest-bearing debt indicates financial vulnerability, with high sensitivity to changes in the interest rate environment.

The Group is gradually expanding the proportion of overseas sales based on its management strategy, and sharp fluctuations in exchange rates, such as a rapid appreciation of the yen, may adversely affect business performance. As overseas sales increase, the Group's exposure to foreign exchange risk also expands accordingly. The annual securities report does not describe any specific hedging measures, and the Group continues to be directly affected by exchange rate fluctuations.

In the course of its business activities, the Group holds a large amount of confidential information and personal information, and continuously works to develop information security management regulations and consider countermeasures against cybercrime. However, if unauthorized access using technology beyond expectations, computer viruses, or other unforeseeable events occur, this could result in the leakage of customer information or technical information, or the suspension of business systems, potentially affecting business performance and financial position. Responding to increasingly sophisticated cybercrime techniques remains an ongoing challenge.