Dainichi Co., Ltd.

Heating Equipment accounts for 66.7% of net sales and is directly affected by winter weather and temperature conditions. The oil-fired heating equipment market has been on a long-term declining trend, and a decline in demand could affect business performance. As a countermeasure, the Company is working to raise the sales composition ratio of Environmental Equipment and other products.

Since Heating Equipment, the mainstay product, is a seasonal product, 56.3% of net sales are concentrated in the third quarter (October to December), resulting in an operating loss structure in the first and fourth quarters. In the fiscal year under review, the fourth quarter operating loss reached ¥774 million. The Company is working to mitigate this seasonal concentration through contract manufacturing of fuel cell units and expansion of air purifiers, coffee bean roasters, and household food waste dryers.

If procurement of necessary raw materials becomes difficult due to global conditions and other factors, production activities could be significantly affected. If a prolonged, significant rise in energy prices, raw material costs, and labor costs cannot be absorbed through price negotiations and productivity improvements, business performance could be affected. The Company strives to ensure a stable supply through procurement from multiple suppliers and responding with price revisions.

The Company has established a Systems Promotion Committee and implements 24/7/365 monitoring through an integrated SOC (Security Operation Center), virus analysis, and multi-layered defenses; nevertheless, cyber attacks or unauthorized access exceeding expectations could result in the destruction or alteration of important data, information leakage, or system shutdown. Leakage of customer personal information or confidential business and technical information could lead to a loss of trust and deterioration in business performance. The status of countermeasures is reported periodically to the Board of Directors.

Although quality control based on ISO9001 is implemented, unexpected defects occurring in the market could result in product liability claims or product recalls. The Company has taken out product liability insurance as a risk hedge, but if a burden exceeding the insurance coverage arises, it could affect business performance.

Production sites for oil-fired heating equipment are concentrated in a single location, creating a risk that operations could be suspended due to fire, flood, earthquake, or other disasters. Inventory held at multiple warehouses nationwide can address short-term suspensions, but if recovery takes a long time, shipments could become impossible, significantly affecting business performance. The Company maintains its ability to respond to peak demand seasons through continuous year-round production and inventory management.

In the mature oil-fired heating equipment market, the Company competes on price and functionality with several companies, including some larger than itself. If the Company loses its technological or other competitive advantages, or cannot effectively respond to price declines or rising sales costs resulting from price competition with competitors, business performance could be affected.

The fuel used for oil-fired heating equipment is kerosene, and fluctuations in kerosene prices linked to crude oil prices could affect consumer purchasing behavior, thereby affecting the Company's business performance. A sharp rise in kerosene prices could act as a factor suppressing demand for oil-fired heating equipment.

The Company has adopted a defined benefit pension plan, and there is a risk that unpredictable fluctuations in the stock and bond markets could reduce the profitability of plan assets, necessitating additional funding contributions and expense burdens. The Company manages this risk by establishing a Pension Asset Management Committee to monitor investment status and by selecting investment managers that have accepted Japan's Stewardship Code.

The Company undertakes contract manufacturing for some products, and if sufficient orders cannot be secured due to the sales conditions of the contracting parties, business performance could be affected. Since contract manufacturing of items such as fuel cell units (with built-in hot water storage tanks) also contributes to mitigating seasonal earnings concentration, a decline in orders could have a compound impact.