NACHI-FUJIKOSHI CORP.

Sales to the automobile and automobile-related industries account for approximately half of consolidated net sales, so business fluctuations in this industry and the progress of EV transition significantly affect business performance and financial condition. There is a risk that accelerating EV adoption will change the demand structure for existing products. In response, the Group is efficiently allocating management resources based on customers' production plans and EV transition outlook, and is promoting new product development and expanded sales in the industrial machinery and electrical/electronics fields.

Overseas sales account for approximately half of consolidated net sales, and unexpected changes in the economic environment, trade and diplomatic policies, and laws and regulations of each country in the Americas, Europe, and Asia regions where the Group operates may affect business performance and financial condition. Heightened geopolitical risks, such as the escalating situations in Ukraine/Russia and the Middle East, are also explicitly identified as important influencing factors. The Group addresses this through balanced business development that avoids over-concentration in specific regions and through rapid acquisition of risk information via close collaboration with each region.

Because the local-currency-denominated business results and financial condition of overseas subsidiaries are translated into yen, fluctuations in exchange rates directly affect the consolidated financial statements. In addition to foreign exchange risk in foreign-currency-denominated transactions, there is also a risk of increased interest payments due to rising interest rates. The Group addresses this through risk-hedging measures such as forward exchange contracts and local production and procurement, as well as strengthening its financial position by reducing interest-bearing debt.

It is unavoidable to respond to price reduction requests from the automobile and automobile-related industries, which are the Group's primary customers, and market price declines due to the rise of products from emerging countries have also occurred for some products. On the other hand, prices of some raw materials, such as rare earths, have surged, creating a risk of profit pressure from both directions. The Group addresses this through strengthened VA/VE activities, in-house production of core components, reduced procurement costs, and continued pass-through of raw material price increases to customers.

There is a risk that procurement may become difficult due to price surges or shortages of raw materials and components caused by market changes, insufficient production capacity or quality defects at suppliers, natural disasters, international instability, bankruptcy, and other factors, which could disrupt product supply to customers. Disruption of the supply chain directly affects business performance and financial condition. The Group is continuously working to strengthen its supply chain through global development and cultivation of new procurement sources, selection of optimal suppliers, and diversification of procurement sources.

Although products are manufactured in accordance with global quality control standards, if unexpected product defects occur, substantial costs and a decline in social credibility could affect business performance. Quality issues in fields where safety is particularly emphasized, such as automotive-related applications, have a particularly large impact. The Group positions quality assurance as one of its most important issues and thoroughly implements quality control across the Group by strengthening process management from product development through design, manufacturing, and service.

If environmental problems such as disasters caused by climate change occur, substantial countermeasure costs may arise, affecting business performance and financial condition. If the Group's response to decarbonization and carbon neutrality is deemed insufficient, there is a risk that it could affect the continuation of business relationships, while an appropriate response is also expected to have a positive impact on business performance. The Group implements measures at each stage to introduce environmentally conscious new products to the market and to reduce greenhouse gases, waste, and environmentally hazardous substances in production processes.

The Group holds a large amount of confidential information and personal information about business partners obtained through its operations, and if confidential information is lost or leaked outside the Group due to computer virus infection, unauthorized access, theft, or other causes, it could affect business performance, credibility, and reputation. The Group strives to prevent information leaks through establishing management systems, employee training, and building information security systems, but complete avoidance is difficult.

Research and development activities for new product development require substantial costs and time, and if they do not proceed as planned, resulting in lost opportunities for commercialization, or fail to reach the market due to a mismatch with market needs, this could affect business performance and financial condition. The Group works to reduce this risk by identifying needs through close relationships with customers, developing proprietary products leveraging seed technologies, and actively collaborating with universities and research institutions.

Against the backdrop of the declining birthrate and aging population, competition to secure excellent human resources is intensifying, and if the Group is unable to secure and develop the necessary personnel domestically and internationally, this could affect medium- to long-term business performance. Maintaining competitiveness requires the continuous acquisition and hiring of diverse talent and leadership development through education and rotation; a shortage of human resources poses a risk directly linked to a decline in technological capabilities and business competitiveness.