Niterra Co., Ltd.

As approximately 80% of sales are derived from overseas markets, heightened geopolitical risks such as the U.S.-China conflict, the Russia-Ukraine situation, and the Middle East situation, as well as economic slowdowns in China and other countries and the impact of tariffs, could affect supply and demand for the Group and its customers. Logistics disruptions, sustained high fuel prices, and changes in laws and regulations are also factors that could worsen the business environment. The Group monitors international conditions and developments in key laws and regulations, and works to assess impacts and consider countermeasures.

Fluctuations in the yen against major currencies such as the U.S. dollar and the euro affect the price competitiveness of products, as well as the yen-denominated amounts of the financial statements of consolidated overseas subsidiaries. The Group hedges against short-term foreign exchange fluctuations through flexible use of forward exchange contracts and other measures. It continuously monitors fluctuations in major currencies and their impact on the business, and considers impact-mitigation measures as necessary.

Progress in energy policies and environmental regulations in countries around the world is accelerating the electrification of the automotive industry, and if the decline in internal combustion engine vehicles progresses beyond the Group's expectations, it could affect the operating results of automotive-related businesses such as Spark Plugs. In developed countries, there is a growing trend toward the adoption of long-life plugs, and the expansion of sales volume of replacement Spark Plugs may not continue. The Executive Officer and Company President Meeting monitors the progress of business activities and considers countermeasures.

Semiconductor components and semiconductor production equipment products in the Components & Solutions business are highly dependent on the business environment of the information and telecommunications industry and the machinery and equipment industry, and fluctuations in semiconductor market demand or an economic slowdown could constrain the growth of this business. Because earnings are subject to the demand cycles of mobile communication equipment and semiconductor production equipment, there is an inherent risk of earnings volatility. The progress of business activities is monitored by the Executive Officer and Company President Meeting, which considers impact-mitigation measures.

Although products are manufactured in accordance with globally recognized quality control standards, there is no guarantee that defects will be eliminated from all products or that recalls will not occur. In the event of a market claim, in addition to the financial burden of product recovery and remedial costs, there is a possibility of adverse effects on the Group's social reputation. Although the Group carries product liability insurance, there is no guarantee that it will be sufficient to fully cover the final amount of compensation. The Group continuously promotes quality improvement activities across all operations to strengthen its quality assurance system and prevent quality issues.

Product markets are characterized by rapid technological progress and changing needs, and new product development requires upfront capital investment before market introduction. If competitors develop new technologies, the anticipated novelty or cost advantage of the Group's products could be lost, or the marketability of existing products could decline, potentially affecting operating results. The Group is working to improve development speed by promoting open innovation and establishing mechanisms to collaborate with external technologies.

Among key raw materials and critical outsourced processes, some are difficult to secure alternative supplies or routes for, and there is a risk that stable procurement could be disrupted by accidents or business discontinuation at suppliers, or by tightened export regulations. Continued sharp increases in the prices of precious metals and other materials used in main products could also affect operating results. The Group is working on promoting multiple sourcing, strengthening collaboration with suppliers, implementing cost reduction and price pass-through measures, and managing procurement risk using digital tools.

Because production and R&D sites are concentrated in the Tokai region, the Group is exposed to the risk of direct damage from natural disasters such as major earthquakes and wind and flood damage. If a pandemic causes supply chain disruptions or production adjustments at major customers, a decline in operations could have a significant impact on operating results and other outcomes. The Group has established a Business Continuity Plan (BCP), and has put in place facility measures, training, and infection prevention measures in anticipation of natural disasters, as well as a system for establishing an emergency response headquarters led by the President in the event of a crisis.

Both transition risks, such as the introduction of carbon taxes and the tightening of environmental regulations, and physical risks, such as the intensification and chronic occurrence of natural disasters, could significantly affect operating results and financial condition. The Group has formulated "Eco Vision 2030" looking ahead to 2030, positioning climate change response as a key issue and setting a goal of carbon neutrality by 2050. The Group is strengthening its CO2 reduction efforts through the introduction of an internal carbon tax and an internal environmental fund, among other measures.

Unauthorized access to IT systems, computer virus infections, and other incidents that cause malfunctions or outages of core systems, as well as leaks of confidential information such as important management and business information or personal data, could result in economic damage in addition to a decline in corporate value. The Group has established a Group-wide management system centered on the "IT Security Committee" and CSIRT, and is globally promoting the continuous improvement of security standards and the strengthening of monitoring systems. Employee training on information security is also conducted on an ongoing basis.