NORITZ CORPORATION

For our group, whose core businesses are the manufacture and sale of gas and oil appliances, a delayed response to carbon neutrality could have a material impact on business activities and sustainable growth. Failure to achieve environmental targets or a decline in ESG evaluations could adversely affect stakeholder assessments on both financial and non-financial dimensions. Based on the medium-term management plan "V-Plan 26," the Group is promoting the sale of environmentally conscious products and the development of next-generation water heaters, while monitoring progress alongside efforts across the entire supply chain.

The risk of prolonged business suspension is increasing due to system failures caused by natural disasters, pandemics, and cyberattacks such as ransomware. Some production sites are located in the Kansai region, and the impact of large-scale natural disasters such as a Nankai Trough earthquake is also anticipated. This year, the risk was newly identified as a company-wide critical risk, with the General Affairs and Legal Affairs Department taking the lead in updating the BCP response manual and developing a response framework for diversified business suspension risks.

There is a risk that procurement of production parts becomes difficult and product shipments are suspended due to lockdowns caused by infectious diseases, conflicts stemming from geopolitical risks, and large-scale natural disasters. During the COVID-19 pandemic, the Group experienced significant impacts on domestic production activities and product shipments, and the adverse effect on business results and financial position has been recognized. The Group has organized items such as "dual sourcing" and "site diversification" for each major component and is promoting dual sourcing, but some components still require further action and efforts are ongoing.

Cyberattacks such as ransomware or system failures could have a material impact on business activities, including suspension of production and shipments and interruption of services. If leakage of personal information, product development information, or management strategy information occurs, it could adversely affect business results and financial position through the occurrence of liability for damages and a decline in brand value. The Group has strengthened security monitoring for its networks, terminals, and cloud environments, established backup systems, implemented access authority management, and conducted e-learning and targeted email attack training for officers and employees.

Quality misconduct, such as unauthorized rewriting of quality data, falsification of inspection data, or misrepresentation of performance, is recognized as a significant risk that could adversely affect business results and financial position through a decline in brand image, the occurrence of compensation and recall response costs, and a decrease in product sales volume. The Group has rolled out its "Quality Guidelines" to each department and has built a framework to prevent quality misconduct through compliance awareness surveys, quality misconduct questionnaires, and information coordination with internal audits.

A labor shortage has become apparent against the backdrop of a declining domestic working population and a rising job openings-to-applicants ratio. The departure of capable employees and young staff is recognized as a risk that could lead to a decline in product and service quality and reduced business competitiveness, thereby adversely affecting business results and financial position. The Group is working to build an appropriate talent portfolio by increasing the proportion of experienced and specialist hires, but conditions in the recruitment market remain challenging. The Group is also working to enhance employee engagement through support for career independence and the enrichment of related systems.

Against the backdrop of growing global demand for carbon neutrality, there is a risk that sales activities may be restricted due to non-compliance with product certification, thermal efficiency standards, and CO2 emission standards. From this fiscal year, top-runner standards have newly been established for water heaters and other products in Japan as well, meaning that sales restrictions due to non-compliance—previously recognized as an issue specific to overseas markets—can now also arise in the domestic market. The Group has organized the timing of changes to laws, regulations, certifications, and sales standards in each country into a roadmap, and is prioritizing high-risk items to build a response framework.

If procured components violate regulations on chemical substances contained in products, or if human rights violations or conflict minerals are involved, there is a risk that product sales could become impossible due to tightening regulations, materially affecting future business activities. In addition to responding to various domestic and international standards, failure to appropriately manage procured components from suppliers could result in exclusion from the market. The Group has newly formulated a chemical substance management policy for products based on unified standards, and is promoting joint information management with suppliers and organizing a roadmap of changes to standards under related laws and regulations.