NIPPON THOMPSON CO., LTD.

The sales ratio to electronics-related equipment such as semiconductor manufacturing equipment and electronic component mounting machines, as well as to machine tools, is relatively high. A sharp contraction in demand in these specific industry sectors could adversely affect the Group's business results and financial position. In addition, an economic downturn across major markets including Japan, North America, Europe, and Asia would also affect performance. The Group is working to mitigate this impact by expanding sales to other industries, but the risk cannot be completely eliminated.

The Group sells to global markets including North America, Europe, and Asia, and fluctuations in exchange rates affect earnings. Although the Group hedges using forward exchange contracts and other means, it is not possible to eliminate all risk, and foreign-currency-denominated items of overseas consolidated subsidiaries in the United States, the Netherlands, China, the Kingdom of Thailand, and elsewhere are affected by exchange rate fluctuations when translated into yen.

As the proportion of business in overseas markets increases, changes in laws and regulations in foreign countries and political or economic disruption may affect business activities. There is a concern that, as dependence on specific countries increases, the impact on performance from geopolitical risks and changes in the regulatory environment will grow.

The Group develops and sells differentiated products that reflect customer needs gathered through "proposal-based sales activities," but if demand shifts toward less expensive similar products rather than products with superior quality and performance, it may become difficult to set sales prices commensurate with added value. The emergence of low-priced products from competitors could lead to a decline in profitability.

Advance investment in materials and production equipment is essential to respond to changes in demand, and demand changes occurring over a shorter period than expected may cause supply delays or increased costs. In addition, procurement of raw materials and parts may be disrupted by price surges or shortages due to changes in market conditions, or by suppliers' insufficient production capacity, fires, bankruptcies, natural disasters, and other causes, which could adversely affect business results through higher manufacturing costs or production suspensions.

Although the Group makes every effort based on its quality management system, if unshippable products or customer complaints arise due to causes related to raw materials, manufacturing processes, or quality control, compensation liability and other consequences could affect business results. Quality issues could also lead to a loss of customer trust, raising concerns about medium- to long-term effects on sales.

The Group handles a large amount of important information and personal data in the course of its business, and has established basic policies on information security and personal information protection along with corresponding measures. However, if information is leaked, damaged, or falsified externally due to computer viruses, unauthorized access, cyberattacks, or other causes, this could adversely affect business results through production or business suspension, loss of social credibility, and costs incurred for countermeasures.

The Group holds inventories due to planned production of a wide variety of products in small lots, and inventory that has remained in stock for more than one year from the date of receipt is subject to valuation write-downs. If the assumptions or preconditions used in estimates change due to shifts in business plans or market conditions, additional valuation write-downs may occur, adversely affecting the financial position and business results.

The Group's main production sites are concentrated in Gifu Prefecture, and if a large-scale earthquake, flood, or other disaster occurs in this region, damage to production facilities, products, and work-in-process could reduce or halt production functions, adversely affecting business results and financial position. In addition, social disruptions such as changes in political conditions due to terrorism or war, or the spread of infectious diseases, could also adversely affect production and sales activities.

The Group acquires intellectual property rights such as patents for its proprietary technologies to protect them, but infringement of intellectual property rights by other companies may occur, potentially affecting business activities. Responding to such infringement entails costs and time associated with legal proceedings, and there is also a risk of losing technological advantage.