NITTOKU CO., LTD.

In the event of a global pandemic, fire, or natural disaster, orders received and net sales may decline due to reduced capital expenditure appetite among customers, delays in witness inspections and shipment/delivery, and stagnation of production activities, which could affect business performance and financial condition. If damage occurs at the Company Group, customers, or suppliers, there is a risk that order-taking, procurement, production, and sales activities could all stagnate. As a countermeasure, the Company has formulated a Business Continuity Plan (BCP) and is working to minimize damage and achieve early recovery.

As many business partners are global companies, terrorism, war, or political instability could lead to export suspensions, order cancellations, or delays or inability to collect payments. Changes in laws in various countries may also require specification changes to production equipment. Since transactions are principally denominated in yen, the direct impact on foreign exchange gains/losses is minor, but such factors could indirectly affect customers' capital expenditure decisions, potentially leading to a decline in orders received and net sales.

Because the Company pursues a policy of undertaking highly challenging projects, there is a risk that expected results may not be achieved, or that increases in material costs and additional man-hours may occur, resulting in delays in the timing of sales recognition and increases in cost of sales and development expenses. In addition, if a major technological innovation occurs in another company's technology domain, such as the development of a drive device to replace motors, it could have a significant impact on the Company Group's business foundation. Unforeseen circumstances relating to intellectual property rights could also result in additional costs such as compensation and litigation expenses.

Since the Company receives orders for and manufactures equipment dedicated to individual customers, unforeseen circumstances resulting in non-conformity of products with contract terms or delivery delays could disrupt customers' production activities and lead to claims for damages. While the Company has taken out insurance to the extent possible to prepare for such damage compensation risk, some events are not covered, and the Company has built mechanisms to prevent occurrence centered on its production and quality control departments.

The Company extends credit, such as accounts receivable and advance payments, to various business partners in Japan and overseas, and deterioration in the financial condition or bankruptcy of a business partner could affect business performance and financial condition. The Company works to prevent such occurrences by implementing credit risk management measures, including credit investigations and setting transaction limits according to credit risk.

The Company may carry out investments, capital contributions, corporate acquisitions, business transfers, or the establishment of new companies for the purpose of expanding its technology domains or developing new businesses and markets. If the expected results are not achieved, investment losses and other costs may arise, which could affect business performance and financial condition.

While the basic policy is to use own funds, the Company plans to borrow from financial institutions if its financial condition becomes tight, and an increase in funding costs or a decision to suspend financing could have a further impact on operating results and financial condition. In addition, the Company invests part of its funds in financial assets such as investment securities that carry principal fluctuation risk, and fluctuations in stock market prices could result in valuation losses or losses on sale.

Buildings, structures, and land related to production plants and the head office account for approximately 80% of the balance of tangible fixed assets. If a significant decline in market value or a significant deterioration in business profitability makes it impossible to expect sufficient future cash flows, it may become necessary to recognize an impairment loss, which could affect business performance.

The Company holds confidential business and technical information as well as confidential information and personal information provided by business partners. If information leakage, data destruction or falsification, or system outages occur due to cyberattacks, unauthorized access, computer virus intrusion, or other events exceeding expectations, this could lead to a decline in credibility and affect business performance and financial condition. The Company, centered on its IT department, is strengthening its management system, thoroughly implementing security education, and taking appropriate security measures covering both hardware and software.

If laws relating to safety and technical matters are amended in various countries, it may become necessary to respond by changing the specifications of production equipment. In addition, if accounting standards or tax laws are amended, this could affect business performance through the recording of provisions or changes in tax amounts, and the Company's policy is to respond through appropriate accounting and tax treatment.