TSURUMI MANUFACTURING CO.,LTD.

In addition to trends in public and private capital investment in the Japanese market, which accounts for 55.4% of net sales, changes in the global economic environment, including North America (15.0%) and Asia (16.6%), affect business performance. If a decline in selling prices due to intensifying market competition coincides with rising raw material and parts costs caused by surging energy and material prices, this could have a material impact on the Group's business results and financial position. The Group strives to reduce risk through strengthened cooperation between the Board of Directors and the responsible departments and through evaluation by the Risk Management Committee.

The Group continuously develops new products that meet market needs; however, if development is delayed or fails and new products cannot be provided, this could lead to a decline in competitiveness and have a material impact on business results and financial position. For the Group, whose core business is the manufacture and sale of pumps and related equipment, maintaining product competitiveness is fundamental to business continuity. A framework for risk evaluation, including misconduct, has been established through the Risk Management Committee.

The Group is subject to government regulations such as legal regulations related to trade, antitrust, intellectual property, product liability, and environmental recycling, as well as business and investment permits in various countries, export restrictions based on national security, and tariffs. Changes in these regulatory trends could affect business results, and responding to regulatory changes across multiple jurisdictions is a particular challenge for the Group, which operates globally. The Group addresses this through the establishment of a Compliance Management Committee and the use of advice from external experts such as attorneys.

In connection with its business activities in Japan and overseas, the Group faces the risk of becoming subject to lawsuits, disputes, or other legal proceedings. Depending on the content and outcome of such litigation, business results and financial position could be affected. The Group addresses this risk by establishing a framework to receive advice and guidance from directors who are Audit and Supervisory Committee members, accounting auditors, attorneys, and others.

Securities investments involve various risks, including price fluctuation risk, credit risk, foreign exchange and interest rate fluctuation risk, and principal impairment risk, and if these risks materialize, they could adversely affect business results and cash flow. Deterioration in the market environment of investees or changes in their credit conditions pose a risk of directly leading to losses. A framework for risk evaluation has been established through the Risk Management Committee.

The Group has carried out mergers, acquisitions, and capital alliances with companies in Japan and overseas for the purpose of business expansion and strengthening competitiveness. However, if changes in the business environment prevent the expected effects from being realized, impairment of goodwill may become necessary, adversely affecting business results and financial position. Similarly, adverse effects may also arise from business restructuring such as withdrawal from unprofitable businesses or reorganization of affiliated companies. The Group manages this risk by maintaining close cooperation and information sharing between the Board of Directors and the responsible departments.

If indications of impairment arise in held fixed assets due to a significant deterioration in the business environment or other factors, and if, as a result of an assessment taking into account future business plans, the recoverable amount is determined to be below book value, recognition of an impairment loss becomes necessary, which could adversely affect business results and financial position. The Group has established a policy to recognize impairment losses through an appropriate assessment process when indications of impairment are identified.

Since foreign-currency-denominated import and export transactions are settled mainly in US dollars, the Group's structure is susceptible to the impact of exchange rate fluctuations on business results. Significant exchange rate fluctuations could affect business results. As a risk mitigation measure, the Group unifies the settlement currency for foreign-currency-denominated import transactions mainly in US dollars, while also using foreign exchange forward contracts and currency swap transactions for hedging.

If actuarial assumptions such as the discount rate used to calculate retirement benefit expenses and retirement benefit obligations under the defined benefit corporate pension plan, or the long-term expected rate of return on pension assets, change, retirement benefit obligations and pension assets may fluctuate, adversely affecting business results and financial position. The Group strives to systematically appoint and assign personnel with specialized knowledge and experience and to fulfill its function as an asset owner, while also making appropriate reviews of the pension system in light of government regulations.

If the business activities of the Group or its major business partners are halted or disrupted due to large-scale natural disasters such as earthquakes, tsunamis, or floods, accidents such as fires, or the spread of infectious diseases, this could affect business results. Based on experience with the COVID-19 pandemic, the Group thoroughly implements employee safety measures such as remote work, office dispersion, and staggered working hours, while also promoting the diversification of product supply risk through global production across multiple regions, including Japan, China, Taiwan, Vietnam, and Italy.