ISEKI&CO., LTD.

There is a risk that domestic agricultural machinery demand will decline due to structural challenges such as a decrease in the number of farm households resulting from the aging of agricultural workers and a shortage of successors, shifts in government agricultural policy, and reduced purchasing intent caused by fluctuations in crop prices. In response, the Company integrated its domestic wide-area sales companies in January 2025 to establish ISEKI Japan Co., Ltd., and is promoting the concentration of management resources on growth areas such as large-scale, advanced, upland farming, and environmental fields, as well as expanding sales channels into the Non-Agri market.

The balance of borrowings at the end of the current consolidated fiscal year was ¥54,995 million, accounting for 26% of total assets. There is a risk of increased borrowing costs due to rising interest rates, increased borrowings associated with higher inventory levels or capital expenditures, and an obligation for early repayment arising from breach of financial covenants under syndicated loans and similar agreements. This risk has been assessed as "expanding" from the previous fiscal year, and the Company is addressing it through receivables securitization, centralized inventory management, setting hurdle rates, and utilizing fixed interest rates.

Changes in trade policy resulting from a change in the U.S. presidency, geopolitical risks such as a potential Taiwan contingency and conflicts in Ukraine and the Middle East, and the high labor mobility and unstable labor relations in the Asia region may restrict supply chains and production/sales activities, potentially affecting business performance. This risk has been assessed as "expanding" from the previous fiscal year, and the Company is addressing it through information gathering and analysis from local consolidated subsidiaries, business continuity reviews upon early detection of geopolitical risk signs, and reviews of operational structures and supply chains.

The overseas sales ratio for the current consolidated fiscal year reached 30.3%. In a yen appreciation scenario, there is a risk of deteriorating business performance due to reduced price competitiveness of domestically produced and exported products, as well as the impact of yen conversion on the financial statements of overseas affiliated companies. The Company mitigates short-term risk through export transactions denominated in both foreign currency and yen, overseas procurement of raw materials and parts, and the use of forward exchange contracts.

A sharp rise in procurement prices leading to increased manufacturing costs, prolonged supply shortages causing reduced production and shipment delays, and shortages of shipping containers and trucks causing shipment delays may spread throughout the supply chain and affect business performance. The Company addresses this through promoting price pass-through, securing multiple procurement sources and transportation means, early ordering and maintaining safety stock, and conducting CSR questionnaires for business partners.

There is a risk that domestic competitiveness will decline if the Company falls behind in developing highly functional products compatible with smart agriculture or in responding to the need to reduce agricultural material costs. Overseas, insufficient response to changes in the business environment, including growing environmental awareness, may hinder the ability to meet diverse regional needs. The Company is addressing this through an increase in development themes related to smart agriculture such as ICT and automation, sales of electric products for Europe, and supply of large-scale and advanced technology products in East Asia.

A significant deterioration in the business environment leading to reduced profitability or a decline in market prices may result in impairment losses on fixed assets held, affecting business performance and financial condition. As part of the structural reform under "Project Z," the Company is promoting production optimization through the integration of the Matsuyama and Kumamoto plants, and efficient inventory management and reduced logistics costs through the integration of domestic sales companies, while working to identify events that could lead to reduced profitability at an early stage and consider countermeasures.

The balance of securities with market value at the end of the current consolidated fiscal year was ¥12,679 million. If stock prices decline significantly, valuation losses or losses on sale may occur, affecting business performance and financial condition. The Company does not hold investment securities for pure investment purposes, and for strategic shareholdings, the Board of Directors verifies the rationale for holding each individual stock annually, selling off stocks as appropriate when the rationale for holding has diminished.

Under a 2°C scenario, the Company faces increased operating and procurement costs and loss of business opportunities due to stricter decarbonization regulations, while under a 4°C scenario, intensified wind and flood damage could disrupt the supply chain and reduce demand for rice-farming agricultural machinery, among other wide-ranging impacts on the Group, whose business is founded on agriculture. The Company is addressing this through the use of renewable energy, introduction of an internal carbon pricing (ICP) system, electrification of agricultural machinery, promotion of smart agricultural machinery adoption, and ongoing review of business continuity plans.

Unauthorized access due to cyberattacks or computer virus infections could result in the leakage of various information, including personal information, or system outages, leading to business disruption and reputational decline that could affect business performance and financial condition. The Company is addressing this through enhanced security using data centers and cloud services, introduction of monitoring services against external unauthorized access, cyber insurance coverage, and regular training on the handling of personal information.