ANEST IWATA Corporation

With overseas sales accounting for more than half of total sales, structural changes in various national markets and declining demand for existing products could have a material impact on sustainable growth. In addition, because a large proportion of transactions are denominated in foreign currencies, there is a risk that unpredictable and sharp exchange rate fluctuations could affect operating results. As countermeasures, the Company continues to develop products that contribute to solving social issues, pursues new business development, and strengthens its supply chain through multiple sourcing and the reconstruction of its logistics network.

If defective products are supplied to the market as a result of issues in any of the development, design, procurement, processing, or assembly processes, significant costs may arise from liability compensation, claims handling, and product recalls, and the resulting loss of customer trust could have a material impact on operating results. In response, the Company thoroughly enforces strict quality standard regulations, involves its quality assurance department from the early stages of development, and operates ISO9001 certification or locally adapted quality management systems at domestic and overseas production sites.

Inadequate sharing of management policies or misalignment in collaborative structures during the post-M&A integration process could result in the loss of customer trust or failure to achieve the initially anticipated synergies. If the target company's business performance declines or its intrinsic value falls significantly, this could have a material impact on the Group's operating results. As countermeasures, the Company conducts prior due diligence, appropriately executes post-merger integration (PMI) plans, and builds a system of close management support from executives.

If recruitment strategies, training policies, and personnel evaluation systems are not sufficiently reviewed, it may become difficult to secure the necessary level of human resources, and initiatives to enhance corporate value may not proceed as planned. In addition, insufficient review of working conditions and compensation systems could give rise to a risk of employee turnover. As countermeasures, the Company is strengthening year-round and mid-career recruitment, restructuring its personnel evaluation system to incorporate a global perspective, enhancing diversity management, and promoting automation and digitalization of operations.

As more than half of employees are foreign nationals working at overseas locations, the Company must respond appropriately to the social conditions and labor environments of each country, and there is a risk that issues concerning working conditions may arise with labor unions in Japan and overseas. If labor disputes are not resolved promptly, this could seriously undermine the stability of business operations and product supply, directly affecting corporate value and operating results. As countermeasures, the Company is working to instill the Anest Iwata Philosophy and enhance employees' sense of belonging by operating employment conditions and evaluation systems suited to each country's institutions.

There is a risk that natural disasters, cyberattacks, unauthorized access via computer viruses, or intentional or negligent acts by employees could result in the leakage or falsification of confidential technical development or sales information and personal data, or in system failures. Misuse of such information could adversely affect operating results through liability for damages. As countermeasures, the Company implements security measures including backup of critical data, provides ongoing employee education, and is strengthening information security systems across the Group, including overseas subsidiaries, under head office leadership.

As the Company operates in a diverse range of countries and regions, it must comply with a wide array of laws and regulations covering export/import control, product safety, intellectual property rights, labor environment, personal data protection, human rights, and environmental considerations. If new regulations or amendments are introduced, or regulatory oversight is strengthened, at a pace faster than anticipated, this could result in unexpected cost burdens or force changes to business plans, adversely affecting performance. As countermeasures, the Company has established information-gathering systems centered on its business locations in each region, and flexibly reviews the direction of business expansion as well as product development and service provision.

If misconduct such as intellectual property infringement, quality fraud, bribery, or harassment occurs, this could affect operating results in the short term through liability for damages, and could also hinder sales and recruitment activities due to loss of trust, potentially leading in the long term to a decline in corporate value or a situation threatening the Company's continued existence. As countermeasures, the Company has established systems and mechanisms to prevent misconduct, developed an internal whistleblowing system covering overseas subsidiaries, and established a monitoring framework through the Audit and Supervisory Committee and internal audit department.

As the Company actively invests in subsidiaries and other entities, including through M&A, appropriate business plans at each subsidiary are essential for determining impairment losses on shares of affiliated companies, impairment losses on fixed assets, and the amortization period and impairment assessment of goodwill. If business plans are inappropriate, this could lead to improper accounting treatment and significantly damage the Company's credibility. As countermeasures, the Company ensures active involvement of the responsible business divisions and accounting department, and has established a reporting, guidance, and oversight framework through the Board of Directors, a majority of whose members are outside directors with expertise in management and accounting.

Through its business operations in countries around the world, the Company is exposed to geopolitical risks such as political and economic fluctuations, war and terrorism, infectious disease outbreaks, and large-scale natural disasters, which could severely disrupt product supply through delays in raw material procurement and logistics and increased costs. If such risks become prolonged or escalate, this could have a material adverse effect on operating results through reduced profitability and impairment of fixed assets. As countermeasures, the Company is working to strengthen its supply system and enhance business resilience through BCP formulation, diversification of production sites, and consideration of alternative sourcing within the Group.