SUMITOMO HEAVY INDUSTRIES,LTD.

The Group, which operates globally with a focus on North America, Asia, and Europe, faces risks such as country risk and economic security issues that may materialize in the form of conflicts, political changes, and the enactment or amendment of laws and regulations in each country and region. These risks directly affect sales networks, production facilities, and supply chains, and may adversely affect business performance and financial condition. This has been selected as a key Group risk for FY2026 (ending March 2026), and risk assessment by the department in charge at the head office and consideration of response policies at the Risk Management Committee are being carried out on an ongoing basis.

During the fiscal year under review, a violation of the Antimonopoly Act occurred at the subsidiary Sumitomo Heavy Industries Material Handling Systems Co., Ltd., and the risk of administrative sanctions such as surcharges or business suspension orders, as well as a loss of social credibility, has materialized. Inadequate response to the tightening or revision of laws and regulations could also give rise to similar risks, potentially affecting business performance and financial condition. Two items, "quality misconduct, data falsification, and violations of laws and regulations" and "violation of the Antimonopoly Act," have been selected as key Group risks for FY2026 (ending March 2026), and organization-wide countermeasures are being implemented.

The Group manages confidential information, including business and technical information of customers and business partners as well as personal information, through a global information system, and there is a risk that cyberattacks, virus infections, or other malicious acts by third parties could cause information systems to shut down or confidential information to be leaked or tampered with. This could lead to the suspension of production and operations, a decline in competitive advantage, and a loss of social credibility, potentially affecting business performance and financial condition. This has been selected as a key Group risk for FY2026 (ending March 2026), and the Group continues to build management systems and implement appropriate security measures.

Demand for capital goods, which accounts for the majority of the Group's net sales, is directly affected by economic conditions in key markets such as Japan, Asia, North America, and Europe. Economic downturns and the resulting contraction in demand could have a significant impact on business performance and financial condition. The Group addresses this through group-wide business portfolio management and continuous monitoring of market trends.

The Group, which manufactures and sells products in countries around the world, is affected by exchange rate fluctuations when translating local currency-denominated sales, expenses, assets, and liabilities into yen, as well as in foreign currency-denominated product prices and material procurement costs. Although the Group utilizes local production through the global allocation of production sites and hedging measures such as foreign exchange forward contracts, the impact on business performance cannot be completely eliminated.

Although products are manufactured under high quality control standards, there is no guarantee that all products are free of defects, and there is a possibility that warranty repair costs or product liability compensation arising from quality issues may occur. Although the Group has product liability insurance, there is no guarantee that all compensation amounts will be covered, and there is a risk that the occurrence of substantial costs could affect business performance and financial condition. "Quality misconduct and data falsification" is also included in the key Group risks for FY2026 (ending March 2026), and strengthening the quality control system remains an ongoing issue.

As the Group has a high proportion of build-to-order production, there is a possibility that costs exceeding initial estimates may arise after receiving orders due to changes in economic conditions or disruptions in design and process, or that penalty payments may occur due to performance or delivery issues. In cases where customers cancel order contracts for their own reasons, the Group takes risk-avoidance measures such as setting penalty clauses; however, if the full amount of incurred costs cannot be recovered, this could adversely affect business performance. The Group seeks to reduce this risk by conducting multifaceted examination of orders before concluding order contracts.

Regarding business-use land revalued as of March 31, 2002, the difference between the market value and the book value after revaluation reached ¥15.8 billion (a decline rate of 19%) as of the end of the fiscal year under review, and there is a possibility that impairment of fixed assets may be recognized due to future declines in land prices or profitability. In addition, as substantial amounts of fixed assets other than land have been recorded due to active growth investments, there is also a risk of additional impairment due to declines in profitability, among other factors. If impairment is recognized, it will directly affect business performance.

The intensification and increase of natural disasters associated with global warming, as well as rising average temperatures, affect the workplace environment, production activities, and the entire supply chain. In addition, the transformation of research and development and production systems for products and services in response to the shift toward decarbonization and low-carbon operations affects overall management. Furthermore, if environmental pollution occurs due to unforeseen circumstances, substantial costs may be incurred, potentially affecting business performance. Under the "Sumitomo Heavy Industries Group Environmental Policy," the Group is promoting the reduction of environmental impact, minimization of waste, and development of systems to prevent environmental pollution.

The Group has established the "Sumitomo Heavy Industries Group Human Rights Policy" and promotes respect for human rights across its business activities; however, if human rights issues arise in business activities, not only within the Group but also across the supply chain, this could lead to a loss of social credibility, suspension of transactions with customers, and claims for damages, potentially affecting business performance. Since a response covering the entire supply chain is required, the scope of management is broad, making this an area where the risk is difficult to eliminate completely.