NICHIAS CORPORATION

The Group serves a broad range of industries as end markets, including petroleum refining and petrochemicals, steel, electric power and gas, automobiles, semiconductors, and construction, and its business performance is affected by capital investment trends across all industries as well as demand trends in semiconductors, automobiles, and building construction. Changes in domestic and overseas economic conditions and business cycles could cause fluctuations in sales and profit. Given the high degree of dependence on specific segments, multiple businesses may be affected simultaneously during economic downturns.

The Group operates overseas, including in Asia, and is exposed to risks such as unforeseen changes in laws and regulations, abrupt changes in financial conditions, and political turmoil. If these risks materialize, they could disrupt overseas business activities and affect business performance and financial condition. As overseas business expands, the Group's exposure to country risk also structurally increases.

The Group uses metals, coke, pulp, rubber, fluororesin, and other materials as principal raw materials, and there is a risk that procurement could become difficult due to changes in the economic environment of suppliers or a decline in their supply capacity. If stable procurement of raw materials is disrupted, it could lead to production stoppages or delays in product supply, adversely affecting business performance and financial condition. Sharp increases in raw material prices could also be a factor pressuring profitability.

The Company and certain domestic subsidiaries continue to pay compensation to employees and former employees for asbestos-related illnesses, as well as relief payments to residents near plants. The Company has also been named in damages lawsuits, and there is a possibility that the burden of compensation costs and other expenses will continue going forward. Depending on the potential number of affected individuals and the progress of litigation, additional cost burdens may arise, posing a risk to the Group's financial condition.

The Group manufactures its products under ISO9001, but there is no guarantee that all products are free of defects or that claims will not arise in the future. If a product defect occurs, it could affect the Group's reputation (brand and trust) as well as adversely affect business performance and financial condition. As the Group handles many products for industrial infrastructure, such as Sealing Materials (Gaskets & Packing) and insulation materials, the scope of impact in the event of a defect could be extensive.

The Group holds personal information and confidential information, and while it has implemented measures such as establishing internal rules, thorough employee education, and strengthening security systems, the risk of information leakage cannot be completely eliminated. If an information leak occurs, it could affect business performance and financial condition through damages compensation and other costs. Amid the increasing sophistication and diversification of cyberattacks, continuous strengthening of countermeasures is required.

The Group operates multiple production sites in Japan and overseas, and if a site becomes unable to operate due to a large-scale earthquake or other disaster, it could affect business performance and financial condition. The Group has implemented measures that take into account the degree of impact on customers if product supply is disrupted, the importance of the product in the market, and the feasibility of switching to alternative products, but there are limits to what can be done in response to large-scale disasters. For products with a high concentration of production at specific sites, the impact of a disaster affecting that site could be particularly significant.

The Group makes accounting estimates regarding revenue recognition on construction contracts, the recoverable value of fixed assets, and the recoverability of deferred tax assets, among others, which are prepared based on assumptions about the future. If these estimates need to be revised, it could affect business performance and financial condition. In particular, progress management for construction contracts and impairment assessments for fixed assets are risk areas that are prone to revision due to changes in the business environment.

Losses may arise if the market value of pension assets declines, investment returns decrease, or the actuarial assumptions underlying the calculation of projected benefit obligations are revised. A continued low-interest-rate environment and fluctuations in the stock market directly affect the management of pension assets and could lead to an increase in retirement benefit expenses and an expansion of unrecognized obligations. Such fluctuations pose a risk to the Group's financial condition.

The Group holds receivables from business partners, including accounts receivable and notes receivable, and while it pays close attention to credit management, unexpected bad debts could affect business performance and financial condition. While the Group has customers across a broad range of industries, credit loss risk may increase in the event of deteriorating business conditions at specific business partners or an industry-wide economic downturn.