Seibu Electric & Machinery Co., Ltd.

The Group, which offers industrial machinery-related products, is directly affected by customers' business performance and economic trends in their respective industries in terms of orders and sales. In particular, transactions with small and micro enterprises are frequent, and these are highly susceptible to economic upturns and downturns, increasing the risk of order declines during economic downturns. The Annual Securities Report does not describe specific countermeasures.

The industry to which the Group belongs has many competitors, and price competition may arise in competing with rivals. Although the Group focuses on developing one-and-only products, in competitive situations there is a risk that selling prices may decline, leading to deterioration in profit margins.

Orders and sales of products related to public investment are affected by the policies of national and local governments. In addition, there is a seasonal pattern in which sales are concentrated in the second half of the fiscal year, and imbalances in production between the first and second halves, as well as delays in ramp-up at the start of the fiscal year, affect business performance. If policy changes result in budget cuts or similar measures, there is a risk that orders could decline significantly.

In overseas exports, exchange rates, tariffs, economic trends and political instability in export destination countries, and natural disasters may affect orders and sales. In addition, on the overseas procurement side, geopolitical risk, logistics disruptions, and instability in trade policy may cause delays in the supply of materials and increases in procurement costs. If these conditions persist over the long term, there is a risk that the impact on production activities and business performance could become serious.

There is a risk that fluctuations in the prices of steel, castings, resin, rare metals, energy, and other materials will raise manufacturing costs and worsen profit margins. If price pass-through is delayed, this could directly affect earnings, and in particular during periods of sharp increases in material prices, short-term pressure on earnings is a concern.

Due to constraints on management resources resulting from the size of the company, development themes must be narrowed down, and if new products and systems do not accurately match market needs, business performance may decline. In addition, if the Group is unable to respond to changes in the market environment premised on the use of AI, there is a risk of losing business opportunities. Responding to the speed of changes in customer needs remains an ongoing challenge.

For products that use advanced technology, quality control has become more complex due to the procurement of a wide variety and large volume of raw materials from external sources. Should a defect occur in a product, in addition to the occurrence of damage compensation, there is a risk of a decline in product reliability and an adverse impact on sales.

System outages caused by core system failures, aging equipment, natural disasters, or external intrusion, as well as information leaks due to cyberattacks, may affect business activities. Furthermore, risks of leakage, loss, or erasure of confidential information and personal data associated with the use of electronic tools such as AI have newly emerged. Should these risks materialize, there is concern about serious impacts on business continuity due to business suspension or loss of trust.

Retirement benefit obligations, which are calculated using actuarial methods, fluctuate due to changes in assumptions and discrepancies between expected and actual returns on pension assets. These effects accumulate over time and may affect the Group's financial position and business performance.

The Group is enhancing facilities and conducting employee training to comply with current environmental laws and regulations; however, if environmental regulations become even stricter in the future due to legal amendments or the enactment of new laws, countermeasure costs may arise, potentially affecting the Group's financial position and business performance. The trend toward stricter regulations continues both domestically and internationally, and the risk of increased response costs exists over the medium to long term.