KANEMATSU ENGINEERING CO., LTD.

As the Company operates on a build-to-order production basis in principle, it may be at a disadvantage in terms of delivery lead time and price when competing against mass-produced or made-to-stock products. In addition, because large-volume orders for raw materials cannot be placed, it is difficult to respond to rises in raw material prices. This poses a risk of declining market competitiveness and deteriorating profitability.

To meet short delivery lead times, for certain vehicle models chassis are procured in advance based on demand forecasts before orders are received. If such chassis fail to result in actual orders, they may become long-term inventory, creating a risk of inventory valuation losses and deteriorating capital efficiency. The Company addresses this by diversifying sales methods, but the effectiveness of this response depends on the accuracy of demand forecasting.

Because the suction pumps used in the High-Power Suction Vehicle are of the Company's own proprietary specification, the majority are ordered from a single specific manufacturer. If a supply disruption occurs at that manufacturer, alternative procurement would be difficult, creating a risk of production stoppages and lost sales opportunities.

If suppliers of chassis or other key components are unable to supply as scheduled due to a disaster or other event, production delays and lost sales opportunities may occur, potentially adversely affecting business performance and financial condition. A temporary breakdown in the supply chain, such as due to a chassis model change on the supplier's side, could give rise to a similar risk. The Company addresses this through ongoing efforts to develop new business partners.

Among subcontractors within Kochi Prefecture, the aging of employees and a decline in young workers entering the workforce are progressing, and some subcontractors are showing signs of concern regarding business continuity. Capital investment for quality improvement has also not progressed sufficiently, creating a situation in which a shift toward a production structure emphasizing orders placed outside the prefecture may need to be considered. A reduction in business scale or closure of subcontractors would directly affect the Company's production capacity.

There are concerns about the occurrence of a Nankai Trough earthquake in Kochi Prefecture, and if one were to actually occur, it could impact sales due to damage to production facilities and result in significant losses for repairs. In addition to formulating and operating a BCP (Business Continuity Plan), the Company is working to mitigate this risk through the operation of its "Techno Base" plant, located on elevated ground within the Kochi Chuo Industrial Park, and the relocation of two major partner companies to the same industrial park.

The outbreak of an infectious disease could lead to a contraction of business activities, potentially having a significant impact on business performance and financial condition. While the Company has planned countermeasures and procedures for early recovery and is working on crisis management, it would be difficult to avoid all risks in the event of an outbreak on a scale exceeding current assumptions.

While overseas sales are mainly conducted through ODA, direct transactions carry greater foreign exchange fluctuation risk and credit risk related to foreign companies. In addition, the risk of product imitation (infringement of intellectual property rights) exists as a risk specific to overseas transactions. Should these risks materialize, they could adversely affect earnings and the collection of receivables.

In conducting business activities in the Chinese market, there is a risk of the emergence of imitation products and the imitation of technologies used by the Company. In the event of a rights infringement, the Company's policy is to take necessary defensive measures in cooperation with Chongqing Naide Sanhua Special Purpose Vehicle Co., Ltd. (China), the recipient of the technology transfer; however, concerns remain regarding a decline in competitiveness and an adverse impact on earnings due to imitation.