SHIBUYA CORPORATION

The Group operates three businesses: the Packaging Plant Business, the Mechatronics System Business, and the Agricultural Equipment Business, and all businesses are affected by trends in customers' capital expenditure. If sudden changes occur in economic conditions or the market environment, this may affect the performance of each business. Although the factors driving performance fluctuations in each business are independent, there is a risk that sudden changes in the external environment could simultaneously spread across multiple businesses.

The soft drink industry segment of the Packaging Plant Business accounts for approximately 20-30% of consolidated net sales and is a core segment, with capital expenditure trends for filling equipment influenced by changes in consumer preferences, weather, and container changes, among other factors. A sharp decline in demand poses a risk of directly and significantly impacting business performance. The Company is proactively addressing this through the strengthening of technological development capabilities and innovative technology development.

Medical equipment, the first pillar of the Mechatronics System Business, is largely supplied on an OEM basis, and there is a risk that orders could decrease significantly due to deteriorating performance or changes in management policy at OEM supply destinations. Given the structure of high dependence on specific customers, decisions made by supply destinations directly affect the Group's performance. As countermeasures, the Company strives to maintain and strengthen business relationships through the promotion of joint development and regular technical and sales liaison meetings.

The Agricultural Equipment Business mainly manufactures and sells agricultural fruit sorting and grading plants to agricultural cooperatives (Nokyo), and in many cases the Nokyo utilize national and local government subsidies when introducing equipment. If there is a shift in national agricultural policy or a change in subsidy systems, the Nokyo's equipment plans could fluctuate significantly, potentially affecting the Group's orders and performance. The Company is diversifying the risk of domestic policy exposure by promoting global sales expansion.

Among the Group's customers are those in industries subject to legal regulations, such as the pharmaceutical and medical equipment industries, and changes in laws and regulations in these industries may affect customers' capital expenditure plans. While tighter regulations may suppress customer investment, they may also generate demand for equipment upgrades to comply with the new regulations, so the impact on performance can go in either direction. The Group closely monitors regulatory trends in each industry and takes appropriate action.

Although the Group takes every measure to ensure product quality and performance, if a PL incident occurs that cannot be covered by quality inspections conducted at the time of product shipment or equipment delivery, or by product liability insurance, this may affect business performance. Because the Group handles products requiring high quality standards, such as equipment for the pharmaceutical and medical equipment industries, the risk of damages liability in the event of a PL incident is correspondingly significant. The Company has established a PL Committee, which takes the lead in responding promptly in the event that an incident occurs.

If a third party infringes on patents related to the Group's products, or if litigation arises from claims that the Group's products infringe on a third party's intellectual property rights, this may affect business performance through opportunity losses, litigation costs, damages, and other factors. Because the Group offers numerous technology-intensive products, such as filling equipment and medical devices, the risk of intellectual property disputes is an important issue for business continuity. The Company has established a dedicated department to manage intellectual property rights, which conducts investigations of third-party intellectual property rights and investigations into potential patent infringement of the Company's own products as appropriate.

If a large-scale natural disaster or the spread of a new infectious disease occurs, the Group may be forced to scale back or suspend production and sales activities, which may affect the Group's business performance. Given the nature of manufacturing operations, a suspension of factory operations poses a risk of directly leading to delivery delays for orders already received or postponement of revenue recognition. The Company has established a Crisis Management Emergency Response Headquarters headed by the President, and has put in place a system to respond promptly in the event of a disaster or similar occurrence.