TEIKOKU ELECTRIC MFG.CO.,LTD.

Capital investment trends in the petrochemical and chemical industries, which are major customers of the Pump Business accounting for the majority of consolidated net sales, directly affect business performance. In particular, if capital investment for petrochemical applications declines significantly due to the progress of decarbonization of society, this could have a material impact on the financial position and business results. As a countermeasure, the Group is working on customer-oriented R&D, quality improvement, and brand strengthening, while also pursuing a policy of actively capturing decarbonization-related capital investment as a new opportunity.

The emergence of substitute or imitation products for Canned Motor Pumps and intensifying price competition could affect the Group's financial position and business results. There is a risk that erosion of the competitive advantage of core products could lead to a decline in market share. As a countermeasure, the Group is working to improve customer trust through product differentiation, brand strengthening, and a focus on maintenance services.

In addition to legal regulations related to trade, antitrust, intellectual property, product liability, trade, foreign exchange controls, and environmental recycling, changes to or new regulations regarding licensing, tariffs, and import/export controls in various countries could restrict business activities. If a regulatory violation occurs, there is a risk of impact on business performance, financial condition, and social credibility. As a countermeasure, the Group works to minimize the risk of regulatory changes by gathering the latest information through local subsidiaries and external organizations, and by promptly establishing internal project teams as needed.

As a technology-intensive company, the Group's medium- to long-term growth is highly dependent on the capabilities of each employee, and insufficient recruitment of talented personnel, outflow of personnel outside the company, and delays in development could lead to a decline in competitiveness. As customer needs become more sophisticated and globalization progresses, human resource risk is positioned as a key issue. As a countermeasure, the Group is promoting increased brand recognition through PR and IR activities, enhancement of the career challenge system, an overseas study program, a project to promote women's participation, and reform of corporate culture through measurement of engagement scores, among other initiatives.

Fluctuations in the prices of stainless steel castings and bar stock, copper wire, steel plate, bearings, and other key components of motor pumps, as well as changes in the supply system, could affect the Group's financial position and business results. There is a risk that dependence on specific suppliers or supply disruptions could hinder production activities. As a countermeasure, the Group is promoting multi-supplier purchasing and global procurement to reduce procurement risk.

If quality claims or troubles occur with motor pumps, which form the core of customers' equipment, this could affect the Group's financial position and business results due to a loss of customer trust. In recent years, the proportion of young workers has been increasing, making skill transfer a challenge. As a countermeasure, the Group is working to improve the effectiveness of its quality management system, promote skill transfer by assigning dedicated education personnel within the General Affairs Department, and actively promote the acquisition of public qualifications.

The Pump Business is mainly based on made-to-order production tailored to individual customer needs, and the difficulty of projects is increasing due to more sophisticated customer needs and increasing demand for shorter delivery times. If delivery delays occur due to design or arrangement errors, this could result in a loss of customer trust and affect business results. As a countermeasure, the Group assigned personnel to promote the systemization of arrangement operations effective April 1, 2024, and is multilaterally addressing bottlenecks through improvements to production management methods, expansion of suppliers, and enhancement of inspection equipment.

The strengthening of greenhouse gas emission regulations and other measures accompanying the transition to a decarbonized economy could constrain the Group's business activities and affect its financial position and business results. There is a risk that increased costs for regulatory compliance and the need to review existing products and business models could arise. As a countermeasure, the Group appropriately identifies, analyzes, and evaluates transition risks to determine response policies, while also promoting enhanced marketing and product development to capture new market opportunities related to decarbonization.

Physical changes due to climate change, such as flooding, could affect the Group's business activities, production sites, and supply chain, adversely impacting its financial position and business results. The increasing frequency and intensity of extreme weather events raises the risk of operational shutdowns and equipment damage. As a countermeasure, the Group appropriately identifies, analyzes, and evaluates physical risks to determine response policies.