BROTHER INDUSTRIES, LTD.

Changes in tariff systems and import/export regulations against the backdrop of U.S.-China relations, as well as instability in the Russia-Ukraine and Middle East situations, may lead to increased procurement costs for raw materials and components and disruptions to the supply chain. Delays in international logistics and rising transportation costs stemming from the Middle East situation may also affect product supply and profitability. As countermeasures, the Group is building a global information gathering and analysis system, considering optimization of production and procurement bases, and diversifying shipping routes and ports used.

Against the backdrop of progressing digitalization and diversifying work styles, the declining trend in office and home printing volumes continues, and the overall market is expected to gradually contract. Since the Printing & Solutions Business occupies an important position in the Group's sales and profits, the impact on business performance could be significant if the response is delayed. The Group is diversifying its profit base by expanding "connected business" including contract-type services and subscription models, and by focusing on the Industrial Printing Business.

At major production sites such as Vietnam, the Philippines, and China, disruptions to material procurement and production may occur due to geopolitical conflicts, natural disasters, or business restructuring by business partners. If delays in parts imports, shipping delays, and soaring freight costs caused by disruptions in international logistics occur simultaneously, this could lead to lost sales opportunities and customer attrition. The Group is strengthening its stable supply system through diversification of procurement sources, strategic stockpiling of critical materials, production of consumables at multiple sites, and diversification of shipping routes used.

With the increasing sophistication of cyberattacks, there is a risk that unauthorized access, malware infections, ransomware attacks, and similar incidents could lead to leakage of personal or confidential information or system outages, making business continuity difficult. The threat of cyberattacks targeting IoT products is also increasing, which could lead to brand value impairment and reduced market competitiveness due to customer information leaks. The Group has implemented countermeasures such as 24/7 security monitoring, multi-layered defense measures, access control, and the establishment of a basic policy on product information security.

As of March 31, 2026, goodwill on the consolidated financial statements stood at ¥60,578 million (5.9% of total assets), of which ¥57,950 million relates to Domino, acquired in 2015. Changes in future cash flow estimates or fluctuations in interest rate levels and market growth rates could result in impairment losses on goodwill, property, plant and equipment, and intangible assets, materially affecting business results. Under the medium-term strategy "CS B2027," the Industrial Printing Business is positioned as a growth engine, and appropriate valuation is maintained through active head office involvement in PMI and the implementation of annual impairment testing.

With a high proportion of overseas manufacturing and sales, the Group is constantly exposed to foreign exchange risk related to foreign currency-denominated transactions. Based on results for FY2026 (ending March 2026), a ¥1 appreciation of the yen against the euro reduces annual profit by approximately ¥800 million, while a ¥1 depreciation of the yen against the U.S. dollar reduces annual profit by approximately ¥300 million. Currency appreciation in regions where manufacturing bases are located, such as China and Southeast Asia, pushes up manufacturing and procurement costs, and also reduces net assets due to the decline in yen-converted value of local currency-denominated net assets of overseas subsidiaries. To mitigate risk, the Group manages risk by combining improvements in the matching ratio of foreign currency-denominated receipts and payments with forward exchange contracts.

The rapid evolution of generative AI and intensifying competition for talent create a risk that it will become difficult to secure and develop personnel with the skill sets necessary for growth in the industrial domain, as well as leaders to drive management transformation. A homogeneous work environment and the occurrence of harassment could make it difficult to recruit and retain talent, potentially leading to a decline in organizational strength and significant damage to social credibility. The Group is strengthening talent management across the Group by increasing mid-career and managerial hires from outside the company, renewing its next-generation leader development program, and formulating the Brother Group Talent Management Policy.

Strengthened regulations and increased compliance costs related to climate change response, as well as delayed response to new or revised chemical substance regulations such as the EU RoHS Directive, could result in product recalls, suspension of production and sales, and fines. Strengthened resource regulations accompanying the advancement of the circular economy also pose a risk of lost sales opportunities. The Group is working to reduce risk by setting SBT-certified mid-term targets for 2030, managing suppliers through its Green Procurement Standards, and responding to the TCFD/TNFD recommendations.

If human rights issues such as forced labor or child labor occur within the supply chain, including production sites in Vietnam, the Philippines, and China, this could result in loss of customer trust, import/export barriers, revocation of third-party certifications, and stock price impacts due to exclusion from investment indices. Discovery of the use of conflict minerals could similarly result in a loss of customer trust. The Group addresses this through self-assessment as an RBA member, third-party on-site audits at four major sites, implementation of human rights due diligence, and formulation of a responsible minerals sourcing policy.

If misconduct such as violations of security export control regulations, competition law violations, anti-corruption law violations, or embezzlement occurs, this could have a significant impact on business operations through legal sanctions, fines, suspension of exports of all products, and loss of social credibility. In particular, some machine tools are subject to export controls, increasing the risk of business restrictions accompanying tightened regulations. The Group works to prevent such issues through thorough adherence to codes of conduct based on its Global Charter, regular compliance training, establishment of internal reporting channels, and screening activities in countries with high corruption risk.