DAIKIN INDUSTRIES,LTD.

If the market environment in countries and regions where the Group conducts business deteriorates due to instability in political and diplomatic conditions, trade friction, tariff increases, economic downturn, adverse weather, the spread of infectious diseases, or other factors, business expansion and profitability improvement may not proceed as planned. Although measures such as strengthening sales networks, improving market share, and reducing fixed costs are being implemented, it may be difficult to respond to sudden changes in the external environment, which could affect the Group's financial position and business results.

Overseas sales account for a high proportion of consolidated net sales, and fluctuations in exchange rates affect sales, expenses, and assets after translation into yen, as well as manufacturing costs and sales in foreign-currency-denominated procurement and sales. In the short term, the Group hedges through forward exchange contracts, and in the medium to long term, works to optimize procurement and production allocation and balance imports and exports by currency; however, there is also interest rate rise risk in fundraising, and although the Group addresses this through committed credit lines and interest rate swaps, increases in funding costs could affect the Group's financial position and business results.

Rapid changes in the environment, such as the emergence of new technologies, products, or services that differ from the Group's assumptions, or intensifying competition including new entrants, may necessitate revisions or transformations of technology and product strategies. If the launch of new products, services, or new businesses is delayed, the Group's competitive advantage over competitors and new entrants may decline, which could affect the Group's financial position and business results.

To accelerate the expansion of business domains and transformation of business structures, the Group actively pursues alliances, partnerships, and M&A; however, after execution, integration may not proceed as planned due to deterioration in market conditions, failure to effectively utilize the target company's management resources, or difficulties in coordination. Although the Group conducts risk assessments regarding business operations at the deal consideration stage and strives for smooth business integration, failure of integration could affect the Group's financial position and business results.

While conducting business in more than 170 countries worldwide, should a problem regarding product safety occur, significant costs may arise from responses such as repairs, replacements, notifications, and disclosure of information to external parties. Although the Group has product liability insurance and other coverage, if losses exceed the insurance coverage limits or if sales decline due to damage to brand image, this could affect the Group's financial position and business results.

In the event of unforeseen severe events such as a global pandemic or large-scale disasters, shortages of raw materials and parts or delivery delays may occur; although the Group addresses this through diversifying suppliers, domestic procurement, and parts commonization, such measures may be difficult to implement in the short term. In addition, there is a risk of soaring procurement prices due to sudden changes in supply and demand or exchange rate fluctuations, as well as a risk of loss of social trust due to serious legal violations within the supply chain, which could affect the Group's financial position and business results.

The Group conducts business in more than 170 countries and regions worldwide and is subject to a variety of laws and regulations in each country and region, including competition law, anti-bribery law, personal information protection law, economic security regulations, environmental regulations, and sustainability regulations. Strengthening of regulations in each country or changes in regulatory interpretation by authorities may restrict business activities, and in the event of legal violations, administrative penalties such as fines or a decline in sales due to damage to brand image could affect the Group's financial position and business results.

Cyberattacks and information leakage incidents continue to occur both domestically and internationally, and unauthorized access or cyberattacks by hackers could lead to the external leakage of personal or confidential information, or the suspension of production lines or logistics systems, causing serious impact on business operations. Although the Group has established an Information Security Committee and implements measures such as strengthening security systems, restricting external access, and conducting training and education, the occurrence of significant damages, penalties, or countermeasure costs could affect the Group's financial position and business results.

With the transition to a low-carbon society, if regulations on the use and emission of refrigerant gases and energy-saving regulations are further strengthened, costs necessary for regulatory compliance may increase, and if responses are difficult or delayed, this could impede product sales. As a physical risk, large-scale disasters caused by abnormal weather could cause damage to employees, production facilities, systems, and the supply chain, and in the event of an environmental pollution issue, the costs of remediation and compensation, along with a decline in social trust, could affect the Group's financial position and business results.

Regarding fixed assets such as goodwill arising from business assets or corporate acquisitions, if impairment losses are recognized due to fluctuations in business performance, this could affect the Group's financial position and business results; the Group strives to take early countermeasures through continuous performance monitoring. In addition, natural disasters such as earthquakes, tsunamis, typhoons, and heavy rains, as well as terrorism, riots, and war, may damage domestic and overseas business sites, the supply chain, and customers, causing disruptions or delays in business activities; the Group seeks to minimize the impact through seismic reinforcement, disaster prevention regulations, and BCP development.