RHEON AUTOMATIC MACHINERY CO., LTD.

A significant portion of net sales is denominated in foreign currencies such as the US dollar and euro, and exchange rate fluctuations against the yen may affect business performance. Although the Group manages this risk through foreign exchange hedging, it may not be possible to completely avoid the impact depending on circumstances. This risk affects both the Food Processing Machinery Manufacturing and Sales Business and the Food Manufacturing and Sales Business segments.

Quarterly sales and business performance may fluctuate significantly due to seasonal consumption changes in confectionery and bread, the cyclical nature of capital expenditure, and short-lead-time orders, cancellations, and delivery schedule changes from customers. Profit margins may also vary depending on the composition of production lines, making it difficult in some cases to forecast full-year performance from quarterly results. The Group seeks to mitigate such fluctuations through thorough order management and cost control.

Sales and business activities in overseas markets are subject to inherent risks such as political and economic factors, unfavorable tax systems, unexpected regulatory changes, regional conflicts, human rights issues, and boycott movements. If the Group is unable to sufficiently address these risks, its business, performance, and financial condition may be affected. This risk primarily concerns the Food Processing Machinery Manufacturing and Sales Business segment.

In the Food Manufacturing and Sales Business, if product defects arise from unforeseen causes, this may result in recalls, complaints, recovery costs, reputational damage, litigation costs, and compensation expenses, adversely affecting business performance and financial condition. Although the Group carries property and liability insurance, there is no guarantee that it will sufficiently cover the final amount of any compensation. The Group strives to prevent food safety incidents through thorough daily quality control.

A substantial portion of sales is derived from innovative new products, and future growth also depends on the development and sale of new products. If the Group faces difficulty in allocating the necessary funds and resources due to changes in social preferences or technological advances, if long-term investments fail to succeed, or if it cannot accurately anticipate market needs, this may adversely affect business performance and financial condition. The Group is promoting ongoing efforts toward new product development.

In certain regions or countries, patent rights may not be fully protected, and the Group may not be able to effectively prevent patent infringement or the manufacture and sale of counterfeit products by third parties. In addition, there is a risk that the Group may be alleged to infringe on third-party patent rights, as well as a risk of losing competitive advantage upon the expiration of patent rights. Should these risks materialize, they may have a material adverse effect on business activities, performance, financial condition, and reputation.

Stable procurement of metal materials such as stainless steel, iron, and aluminum, resin and petroleum-derived materials, and semiconductor-related components is a critical issue for production activities, and the supply chain may be disrupted by natural disasters, geopolitical risks, global demand fluctuations, or changes in suppliers' policies. If supply shortages or sharp increases in procurement prices occur, this may lead to disruptions in product supply and deterioration in cost ratios, affecting financial condition and business performance.

The Group is subject to a wide range of laws and regulations covering quality, transactions, the environment, labor affairs, occupational health and safety, accounting standards, and taxation, and if compliance issues, including legal violations, arise, business performance and financial condition may be affected. The Group has established a Risk Management Committee and a Corporate Ethics Committee, and works to formulate codes of conduct and thoroughly instill compliance awareness among all officers and employees.

The Group holds a wide range of data related to design, production, sales, accounting, and human resources and labor affairs, as well as customer information and personal data, and the risk of data destruction, tampering, leakage, or system outages due to virus infections or cyberattacks is increasing year by year. The scope of impact has also expanded with the spread of telework and remote work, making it difficult to completely eliminate this risk. In addition to regular vulnerability assessments, strengthened countermeasures, and employee training, the Group has taken out cyber risk insurance, but there is no guarantee that it will sufficiently cover the amount of any compensation.

Physical risks to factory operations and the supply chain due to abnormal weather, as well as risks of rising raw fuel and electricity prices associated with the transition to a low-carbon society, may adversely affect business performance. As the head office and factories are concentrated within the same prefecture, in the event of a large-scale disaster, facility damage, disruption of social infrastructure, and damage to business partners may affect business performance and financial condition. The Group strives to build a business continuity framework through the establishment and periodic review of BCPs for infectious diseases and disasters, seismic resistance assessments, and the introduction of safety confirmation systems.