SATO CORPORATION

In addition to the risks of leakage of personal and confidential information, data destruction or tampering, and system outages due to cyberattacks, the risk of attacks on customer environments using IoT products as a stepping stone is also increasing, and this risk is rated as Importance A. From a technical standpoint, the Group has implemented UTM and EDR solutions and conducts 24-hour network monitoring; from an organizational standpoint, it has established a CSIRT and PSIRT; and from an educational standpoint, it regularly conducts targeted phishing email attack drills.

At production and sales sites deployed globally, there is a possibility of losing business opportunities due to heightened political, military, or social tensions, and this risk is rated as Importance A. The Group has adopted a policy of funding business investments in regions with high geopolitical risk from local operating cash flow, without additional investment from the head office, and is also diversifying its procurement network in response to the deteriorating situation in the Middle East.

In the DCS & Labeling business model, there is a risk that quality assurance control may decline due to insufficient verification time resulting from increased procurement of third-party products and the growing volume and sophistication of custom-developed software. Unexpected quality issues could adversely affect sales capability, and this risk is rated as Importance A. As countermeasures, the Group has thoroughly enforced the requirements definition agreement process, holds quotation review meetings, and has established a PSIRT to build a security incident response framework.

Due to the one-stop solution provision model that leverages on-site capability as a strength, the SG&A expense ratio is higher than that of peer companies, resulting in a high break-even point structure. If sales decline sharply, the impact on operating results would be significant, and this risk is rated as Importance A. As countermeasures, the Group is actively promoting global expansion and strengthening the stable order-taking framework for maintenance and Supply Products to diversify its revenue base.

Risks related to climate change are assessed as having a large impact and medium likelihood of occurrence, and are classified as Importance A. Detailed response content is disclosed on the Company's website as part of its response to the TCFD recommendations, and specific explanations are omitted from the main text of the Annual Securities Report.

There is a risk that the Group's products could be alleged to infringe on third parties' intellectual property rights, resulting in sales injunctions, damages claims, or litigation that could make manufacturing and sales impossible, and this is assessed as having a large impact. As countermeasures, the Group conducts infringement prevention investigations aligned with the development schedules of new products and services, and maintains a system for continuously monitoring competitors' patent applications.

There is a risk that if it becomes difficult to hire and retain capable personnel due to intensifying competition for talent in the labor market, this could weaken research and development capabilities and hinder stable product supply due to labor shortages, and this risk is rated as Importance A. As countermeasures, the Group is developing diverse work arrangements through remote work, flextime, and DE&I promotion, and is advancing a management-led human capital strategy that incorporates the engagement score into executive KPIs.

At production sites centered on Japan, Malaysia, and Vietnam, there is a risk that production and logistics could stagnate due to deteriorating international conditions, natural disasters, infectious diseases, strikes, etc., leading to delays in parts procurement, rising freight costs, and product supply shortages resulting in customer attrition. As countermeasures, the Group is systematically securing safety stock, diversifying procurement across multiple suppliers, and establishing a system for prompt 4M change notifications.

If the Group is slow to respond to revisions in domestic and overseas laws and regulations or to trends in public opinion, there is a risk that ethical issues or compliance violations could damage brand image and credibility, affecting sustainable growth and enhancement of corporate value. As countermeasures, the Group has clarified responsible departments for competition law and anti-bribery matters, has the internal control oversight department develop regulations, and maintains a whistleblowing system.

There is a risk of misconduct such as accounting fraud or embezzlement occurring at overseas business locations that are difficult for the head office to monitor closely, and this is assessed as having a medium impact and medium likelihood of occurrence. As countermeasures, the Group appoints head office executives to major overseas subsidiaries, provides coaching and training to local management, conducts compliance education via e-learning for all employees, and maintains a whistleblowing system.