Sodick Co., Ltd.

Orders in the Machine Tools Business and Industrial Machinery Business are directly linked to customers' capital expenditure activities and are heavily influenced by trends in industries such as automotive, electrical/electronics, semiconductors, aerospace, and medical devices. Against a backdrop of heightened geopolitical risk and uncertainty over monetary policy, the recovery of the capital expenditure environment has been uneven, and a global economic downturn or prolonged stagnation in capital expenditure could have a material impact on orders, net sales, and profit levels. In response, the Company is diversifying its business portfolio through the expansion of the Food Machinery Business and other businesses, building a stable revenue base through the expansion of regular maintenance and consumables sales, and promoting cost reduction and production automation.

The Company conducts production and sales activities in North America, Europe, China, Asia, and other regions, and the proportion of net sales generated overseas is high. Accordingly, changes in the political and economic conditions of each country, changes in trade policy and tariff systems, and heightened geopolitical risk may affect business performance and financial position. In particular, China is a major customer market accounting for a high proportion of net sales, and changes in that market's economic conditions, industry trends, and competitive environment have a greater impact on business performance compared with other regions. In response, the Company is building a local production and consumption system in China, diversifying its sales and production bases, and continuously reviewing its BCP.

As a large portion of net sales and production activities are conducted overseas, fluctuations in foreign exchange rates affect not only net sales and profit levels but also the increase or decrease in net assets through the yen-equivalent value of foreign-currency-denominated assets and liabilities and foreign currency translation adjustments. In the event of sharp exchange rate fluctuations, foreign exchange gains or losses could affect ordinary income and other items, and consolidated net assets could fluctuate significantly. In response, the Company is reducing risk through the use of forward foreign exchange contracts and building a production and sales structure that aligns revenue and expense currencies overseas.

If elevated prices for castings, stainless steel, brass, copper, and other materials persist over the long term, this could have a significant impact on product cost. In addition, rare earths and other materials used in linear motor magnets are subject to risk from tightened export restrictions by certain countries, and a prolonged procurement lead time, difficulty in securing alternative materials, and sharp increases in procurement prices could seriously affect production plans and costs. In response, the Company is diversifying procurement sources through multiple procurement routes and suppliers, examining alternative materials, reviewing safety stock levels for key materials, and conducting supplier BCP surveys.

Continuous introduction of new products is necessary to respond to technological innovation and changes in market needs; however, new products and business fields involve uncertainties such as resolving technical challenges, grasping market needs, changes in the competitive environment, and the burden and payback period of commercialization investment. If these risks materialize, it may become difficult to recover investments, which could affect business performance. In response, the Company is promoting research and development through a tripolar structure in Japan, China, and North America, collaborating with universities and research institutions, leveraging partnerships with external parties and M&A, and flexibly reviewing its business plans.

If personal information or confidential business or technical information were to leak due to cyberattacks, computer virus infection, unauthorized access, or similar incidents, this could result in a decline in social credibility, interruption of business activities, incurrence of countermeasure costs, payment of substantial fines, suspension of transactions, and other consequences that could affect operating results and financial position. In recent years, cyberattack methods have become increasingly sophisticated, and it cannot be ruled out that the Group may become a target. In response, the Company thoroughly utilizes thin clients, has introduced comprehensive security management tools, regularly conducts targeted attack training, and undergoes vulnerability diagnostics by third-party organizations.

Amid the declining birthrate, an aging population, and intensifying competition to acquire talent in the labor market, the Company may not be able to secure highly specialized engineers, skilled workers, and global management personnel as planned. Skilled engineers and workers are concentrated among older age groups, and if generational transition and the smooth transfer of technology and skills do not proceed as expected, this could affect R&D capabilities, production activities, and overall business operations. In response, the Company is promoting planned recruitment activities, training by hierarchy and specialized field, and the development and appointment of local personnel at overseas locations.

As of the end of December 2025, the balance of interest-bearing debt was ¥37,708 million, and a rise in interest rates could affect business performance. In addition, if business performance were to deteriorate significantly, it may become difficult to raise funds from financial institutions, and a breach of financial covenants attached to certain loan agreements could pose a risk to fund procurement. In response, the Company is securing liquidity through cash and deposits of ¥45,064 million and a commitment line of ¥16,000 million, while working on long-term fund procurement at fixed interest rates and managing and reducing interest-bearing debt.

The Group's technologies and products are subject to export restrictions under Articles 25 and 48 of the Foreign Exchange and Foreign Trade Act, and if products were to be illegally sold to countries or end users of concern, this could result in legal sanctions or a loss of social credibility, potentially affecting business performance. In response, the Company has established a management structure centered on its Export Control Office in accordance with laws and related regulations, and conducts strict screening and continuous monitoring.

Competitors exist both domestically and overseas, and the nature of competition has become more sophisticated due to advances in technological innovation. If competitors develop products that greatly exceed the range covered by the Company's technology, this could lead to a loss of competitive advantage and a decline in market share. In addition, if downward price pressure from competitors intensifies, the Company may be forced to lower its selling prices, which could affect business performance through a decrease in sales volume and a decline in profit margins. In response, the Company is continuing to advance its core technologies, expanding processing domains and applications, and building mid- to long-term customer relationships through the provision of after-sales service and consumables.