NIKKISO CO., LTD.

The Group operates in multiple regions, and if procurement requirements related to medical devices and other products, or legal mandates for local content ratios, are strengthened, this could result in restrictions on participation in tenders and a decrease in sales opportunities. In addition, the establishment, revision, or tightening of laws and regulations could result in additional costs to restructure the supply chain, which may affect the Group's business performance. As countermeasures, the Group continuously gathers legal and regulatory information across multiple regions and is working to review procurement policies and strengthen its technical verification framework.

The Group engages in numerous cross-border transactions between group companies, and if a discrepancy in views arises with tax authorities regarding transfer pricing taxation, additional tax burdens or penalties may be incurred. In fact, in July 2021, Nikkiso International, Inc. received a reassessment disposition regarding its business income for fiscal year 2018, and both the Tokyo District Court and the Tokyo High Court dismissed the company's claims; the case is currently under appeal to the Supreme Court (appeal procedures conducted on February 12, 2026). As countermeasures, the Group formulates and operates transfer pricing policies, prepares transfer pricing documentation, and utilizes advice from experts.

The Group's main transaction currencies are the US dollar and the euro, and since foreign-currency-denominated sales exceed foreign-currency-denominated purchases and foreign-currency-denominated assets exceed foreign-currency-denominated liabilities, an appreciation of the yen could adversely affect earnings and cash flows. Given the Group's structure of global production and sales bases, the impact of exchange rate fluctuations extends to both business performance and financial condition. As countermeasures, the Group continuously monitors foreign-currency-denominated asset and liability balances, converts to yen, and utilizes hedging instruments such as foreign exchange forward contracts.

The Group holds a high share of the domestic dialysis device market, but the number of dialysis patients in Japan is expected to turn to a decline over the medium to long term, and if the Group fails to respond to this structural change in the market, the business performance of the domestic hemodialysis business may deteriorate. In a business structure highly dependent on the domestic market, a decline in the number of patients carries an inherent risk directly linked to a contraction in sales scale. As countermeasures, in addition to continuing to provide products that meet customer needs, the Group is working to increase overseas sales, particularly in the United States.

The Group operates multiple businesses in markets where technology advances rapidly, and if it fails to properly capture changes in the market and customer needs, the development and launch of new products may be delayed, resulting in a decline in competitiveness. In addition, delays in responding to new materials, new manufacturing methods, or shifts in demand scenarios could increase development costs and timelines and create a divergence from investment recovery plans. As countermeasures, the Group is working in parallel to strengthen collaboration with customers, research institutions, and suppliers, agilely incorporate external information, and pursue phased product improvements alongside early initiation of next-generation product development.

The Group designs and manufactures products globally across its Industrial, Aerospace, and Medical business divisions, and if non-conformance with laws, standards, or customer requirements, or quality fraud occurs, substantial costs associated with recalls and customer responses may arise, affecting business performance. In particular, for product groups including medical devices, quality issues carry risks that can affect human life. As countermeasures, the Group continuously conducts periodic evaluations of its quality management systems, including ISO9001, compliance audits at domestic and overseas production sites, and quality education for all employees.

The Group procures a wide variety of raw materials and components, and geopolitical risk, inflation, changes in trade policy, dependence on specific regions, end-of-life of key components, or supplier business withdrawal may lead to tight supply, extended lead times, price increases, and higher logistics costs. Where supplier options are limited, delays or disruptions in the supply of components may cause production stoppages or delays, which may affect the Group's business performance. As countermeasures, the Group is promoting dual/multi-sourcing of critical components, geographic diversification of procurement sources, development of new suppliers, optimization of inventory and logistics systems, and consideration of alternative materials from the design stage.

Intensifying competition for talent may prevent the Group from securing the necessary personnel as planned, potentially delaying the execution of business strategies and global expansion; if the outflow of talented and experienced personnel progresses, the transfer of technology and skills may be hindered, potentially leading to a decline in technological capabilities and business execution capacity. Stagnation in employee growth due to a lack of development opportunities also carries the risk of weakening the overall competitiveness of the organization. As countermeasures, the Group is considering competitive compensation levels, reviewing its personnel system, formulating succession plans for key positions, and systematically developing selected talent.

The Group conducts its operations using cloud services and internal networks, and if system vulnerabilities are left unaddressed due to unauthorized external access or malware infection, this could result in the leakage of confidential information or business disruption. There is also a risk of data tampering or information leakage due to employee operational errors or inappropriate access management. As countermeasures, the Group is implementing firewalls and intrusion detection systems, conducting periodic vulnerability assessments, providing security education to employees, and promoting the standardization of security measures across the Group.

The Group is composed of employees with diverse backgrounds, and as its business activities extend around the world, if corporate governance fails to function effectively or if control over domestic and overseas group companies as a whole is insufficient, this could give rise to compliance violations such as legal infringements, leading to administrative dispositions, fines, litigation costs, loss of credibility, damage to brand value, and a decline in corporate value. As countermeasures, the Group is developing decision-making and reporting processes for important matters at group companies, periodically reviewing and disseminating the "Nikkiso Group Global Code of Conduct," developing and promoting a global whistleblowing system, and continuing to provide compliance education.