Akasaka Diesels Ltd.

The Company operates a business centered on marine internal combustion engines, which is premised on shipbuilding companies receiving vessel orders. If vessel order volumes fluctuate significantly due to global economic trends, or if orders for products with low profitability are received beyond expectations, this could have a material impact on business performance. The Company conducts annual risk identification and mitigation activities through a risk register.

Some of the raw materials and parts used in product manufacturing depend on specific suppliers, and there is a risk that supply may become difficult due to factors beyond the Company's control. In addition, if it becomes difficult to pass on price fluctuations to selling prices during periods of rapid price changes, this could adversely affect business performance. Continuous risk management is conducted through the preparation of risk registers by each responsible department.

Environmental regulations concerning vessels are determined by the IMO (International Maritime Organization), and depending on the content of such regulations, sales activities for the Company's products may be restricted. In addition, if cost increases arising from the introduction of carbon pricing such as carbon taxes cannot be reflected in selling prices, this will affect business performance. The Company addresses this by advancing product development in line with environmental regulations.

If large-scale natural disasters such as major typhoons and floods associated with climate change, or major earthquakes, occur in areas surrounding production facilities, there is a risk that production activities may be disrupted due to physical damage to facilities or human casualties. If production sites are highly concentrated, the impact on business performance could be substantial. The Company conducts risk mitigation activities through an annual risk register.

If a serious quality problem occurs with a product, this may result in the payment of substantial compensation costs to customers, as well as significant damage to the Company's corporate reputation. Given the product characteristics of marine internal combustion engines, which require high reliability, the impact of quality problems could be particularly severe. The Company conducts continuous management of quality risk utilizing its risk register.

There is a possibility that impairment losses or valuation losses may need to be recognized on the Company's holdings of securities, fixed assets, and other assets due to declines in market value or changes in accounting standards. As the recognition of such losses directly affects performance for the current period, this is recognized as a significant financial risk. Monitoring is conducted through the preparation of risk registers by each responsible department.

Securing personnel with various qualifications and skills is essential to business operations; however, there is a risk that the Company may be unable to maintain its intended staffing structure due to a declining working population caused by the falling birthrate and aging population, or due to employee turnover. In the manufacturing industry, where specialized skills are required, personnel shortages directly affect production capacity and quality, raising concerns about the impact on business performance. Human resource risk is managed through the risk register.

The outbreak and spread of infectious diseases, including COVID-19, may significantly restrict business activities at the Company and its business partners over an extended period. This is recognized as a risk that could have a material impact on business performance, including effects on the entire supply chain as a manufacturing company. Continuous risk management is conducted through an annual risk register.

There is a risk that personal information and confidential information of business partners, as well as confidential business and technical information held by the Company, may be leaked, tampered with, or subject to system outages due to computer virus intrusion or sophisticated cyberattacks. Such incidents could result in substantial costs and significant damage to the Company's corporate reputation, potentially adversely affecting business performance. Information security risk is managed utilizing the risk register.

If product shipments become impossible due to heightened war, terrorism, or geopolitical risks in export destinations, or if logistics disruptions and surging energy prices affect procurement prices, this could adversely affect business performance. Given the highly export-dependent nature of marine engine products, changes in international affairs constitute a risk directly linked to business continuity. Continuous risk management is conducted through the preparation of risk registers by each responsible department.