NIKKO CO.,LTD.

The prolongation of the Russia-Ukraine situation and heightened tensions in the Middle East may cause supply shortages, delivery delays, and price increases for petroleum-derived products such as paints and thinners, as well as materials used in civil engineering work. Combined with rising logistics costs and exchange rate fluctuations, this could disrupt product manufacturing, shipping, and construction progress. Note that the impact associated with the Middle East situation has not been factored into the consolidated earnings forecast for FY2027 (ending March 2027) as of the current time, and the Company states it will continue to monitor developments closely.

The domestic asphalt plant market is an oligopoly in which the Company holds a high market share; however, if differentiation measures such as new product development and strengthening of maintenance services, remote support, and automation do not progress sufficiently, the Company's appeal to customers may decline. In addition, if overseas manufacturers such as those in China and South Korea improve their technological capabilities and enter the Japanese market in the future, competition may intensify. Furthermore, if consolidation of the road paving industry leads to the concentration of asphalt plant facilities, the market itself may shrink in size.

Asphalt plants primarily use fossil fuels as an energy source, and the Company is working on developing technologies such as improved fuel efficiency, heat source conversion, and CO2 capture and absorption. However, if societal demands for reducing environmental burden progress faster than expected, the Company's technological innovation may not keep pace. Although the Company is working in cooperation with its customers, road construction companies, to address this, delays in technological development carry the risk of leading to a decline in competitiveness.

In the Chinese asphalt plant market, the Company has secured a certain position in the high-end model category; however, as Chinese manufacturers improve their technological capabilities, competition may intensify in the high-end market as well in the future. Intensifying competition could affect the Company's price competitiveness and sales volume, posing a risk of declining profitability in overseas operations.

The Company has established a manufacturing subsidiary in Thailand and is working to expand sales in the ASEAN market; however, if the Company's products fail to gain sufficient support from customers in Thailand and other ASEAN countries, or if productivity improvements at the plant do not progress, there is a risk of impairment of the plant. Failure to achieve sales plans could affect the profitability of the entire overseas business and could lead to the recognition of impairment losses on fixed assets.

If a future administration advocating restraint on public investment comes to power, customers may curb capital expenditure, as has occurred during past changes in administration. Demand for asphalt plants is closely linked to public investment budgets, and budget cuts pose a risk of directly affecting the Group's net sales.

The Company's business model is a vertically integrated one in which the Company and its partner companies handle everything from plant manufacturing to on-site installation work and Maintenance Service, with securing on-site workers being a source of competitive advantage. If the necessary number of Maintenance Service personnel and construction workers cannot be secured, it may become difficult to maintain this competitively advantageous business model. Although the Company is promoting labor saving through the use of IoT, the risk of labor shortages is recognized as an ongoing challenge.

If price increases and inflation concerns continue, profitability may deteriorate due to rising prices of materials, etc. purchased by the Company. In addition, if price increases affect customers' capital expenditure plans and lead to postponement or suspension of investment, there is a risk that this could also affect the Group's net sales.

The Group procures raw materials, parts, products, etc. from both domestic and overseas sources. If necessary materials and parts cannot be procured in a timely manner due to a decline in suppliers' supply capacity, disruptions in international logistics, or rising transportation costs, this may result in delivery delays, increased manufacturing costs, and lost sales opportunities. These events are recognized as risks that could adversely affect the Group's business performance.

The main products of the mobile plant business are imported from Europe and sold domestically. Although the Company hedges risk through advance foreign currency purchases and forward exchange contracts, if hedging is insufficient, the Company may be exposed to foreign exchange fluctuation risk. In particular, if the yen depreciates further, import costs may rise, posing a risk of reduced price competitiveness for the Company's products sold.