NPC Incorporated

There is a risk that revenue recognition may be delayed due to design changes or changes in acceptance inspection timing at the customer's discretion, and since some large projects exceed ¥1,000 million in sales, there is a possibility of significant deviation from the initial earnings forecast. In addition, profit margins vary by project, and there is a risk that the expected profit margin cannot be secured for projects involving development elements or in cases of excess manufacturing man-hours or product defects. The company addresses this through minutes management based on ISO9001, design reviews, progress checks at executive meetings, and customer witness inspections before shipment.

For domestic orders of manufacturing equipment for perovskite solar cells, in many cases advance payments cannot be received and payment is made in a lump sum after acceptance inspection, meaning expenditures such as procurement precede revenue, which could affect cash flow on large projects. Given that an increase in orders for large domestic projects is expected over the next few years, this risk could materialize at any time; the company addresses this by improving its equity ratio, building up cash and deposits to strengthen its financial structure, and utilizing bank borrowings as needed.

Deferred tax assets are recognized based on forecasts and assumptions regarding future taxable income, and if changes occur in the profit plan due to trends in capital expenditure by major customers, or if there are tax system revisions including tax rate changes or accounting standard revisions, a review may be required, potentially affecting net income for the period. The company addresses this by making reasonable and conservative estimates of taxable income when assessing recoverability and conducting periodic reviews.

If a sharp increase in orders or a shortage of personnel due to the aging of engineers occurs, the production capacity of the Matsuyama Plant may become insufficient, potentially resulting in delivery delays, failure to meet specifications, and lost order opportunities, which could affect business performance. While the assembly process can be addressed through outsourcing to partner companies or accepting temporary staff, design and electrical design are difficult to outsource, so the company addresses this through strengthened recruitment and training of young engineers, close coordination of manufacturing schedules, and delivery date negotiations with customers.

The proportion of sales to the solar cell industry is high, and if adoption stagnates or slows, it could have a material impact on business performance, including the occurrence of impairment losses. As countermeasures, the company is expanding its business beyond manufacturing equipment to cover the entire solar cell lifecycle, including inspection equipment and services for existing panels, recycling equipment for discarded panels, and intermediate processing operations, while also seeking to increase the proportion of sales outside the solar cell industry through FA Equipment and new businesses.

The company currently has a very high degree of sales dependence on First Solar, Inc., a NASDAQ-listed solar cell manufacturer in the United States, and its subsidiaries. If First Solar were to scale back its business, experience a decline in creditworthiness, or reduce transactions, this could have a significant impact on the Group's business performance. As countermeasures, the company is strengthening its relationship through R&D and cost reduction, enhancing services through the establishment of a U.S. factory, strengthening sales of FA Equipment and to solar cell manufacturers other than First Solar, and promoting customer diversification through expansion of equipment for perovskite solar cells and recycling equipment.

The proportion of overseas sales is high, at 60-80%, and in a yen appreciation phase, there are concerns about the occurrence of foreign exchange losses and a decline in price competitiveness relative to overseas competitors. On the other hand, in a yen depreciation phase, overseas procurement costs would rise, but the company considers the risk level to be low at present since the proportion of overseas procurement is low and domestic procurement is the mainstay. As countermeasures, transactions with overseas customers are, in principle, denominated in yen, and for foreign currency-denominated transactions, forward exchange contracts are used for projects exceeding a certain scale.

The proportion of material costs in manufacturing cost is high, at approximately 60-70%, and a sharp rise in component prices would significantly affect business performance through an increase in manufacturing costs. Countermeasures include reflecting component prices at the time of estimation in equipment pricing, price negotiations with suppliers, and incorporating renegotiation clauses into contracts to address sharp price fluctuations after order receipt. Since the 31st fiscal period, the company has been able to secure a certain profit margin through contracts with sales prices that incorporate price increases.

If the main Matsuyama Plant (Matsuyama City, Ehime Prefecture) were to be damaged by a disaster, a decrease or loss of production capacity could affect the business; according to an insurance company's assessment, the probability of an earthquake with a seismic intensity greater than 6-upper occurring within the next 30 years is 18.4%. Business continuity is possible under the cell-based production method if personnel and space can be secured, and the company has built a system for early recovery through the establishment of a production outsourcing arrangement with partner companies and network backups of equipment drawings and accounting data.

The securities report explicitly states that there are various risks that could affect operating results and financial condition, including litigation risk, risk of infringement or being infringed upon regarding intellectual property, legal regulatory risk, country risk, and information security risk. While detailed quantitative disclosure is not provided individually for each of these, given the business characteristic of a high proportion of overseas sales, particular attention should be paid to country risk and information security risk.