OKANO VALVE MFG.CO.LTD.

The Group's sales have a high proportion derived from nuclear power plants, and if there is a significant retreat in domestic and overseas nuclear power utilization policies, or if construction restrictions or extensions of inspection cycles are implemented under the Act on the Regulation of Nuclear Source Material, Nuclear Fuel Material and Reactors, the business could be significantly affected. As a countermeasure, the Group is working to expand its solutions business that is not dependent on nuclear power utilization policy.

Okano Shoji Co., Ltd., a related party, holds 21.87% (392 thousand shares) of the Company's issued shares, and sales to this company during the fiscal year under review reached ¥2,779 million, equivalent to 39.7% of the Group's net sales. If there is a significant change in the relationship with this company, it could have a material impact on business strategy and operating results. As a countermeasure, the Group is working to mitigate risk by expanding transactions with parties other than this company.

The Group manufactures, sells, and maintains special valves and their components that play critical functions in power generation equipment and other facilities, and if troubles arise due to product defects or malfunctions, the business could be significantly affected. As a countermeasure, the Group has established a Quality Assurance Department, and is working to strengthen quality control through regular monitoring and to prevent the shipment of nonconforming products.

The Group's products use special materials such as rare metals, and a sharp rise in purchase prices or trends in producing countries could affect the Group's financial position and operating results. As a countermeasure, the Group secures multiple suppliers to stabilize procurement prices.

As the Group engages in power plant maintenance, demand for maintenance work tends to decline during periods of peak summer and winter electricity demand, resulting in seasonal fluctuations in business performance. As a countermeasure, the Group is working to mitigate fluctuation risk by expanding into businesses other than maintenance work.

In providing maintenance services, if there is a divergence between the estimates made at the time of order receipt and actual results due to changes in construction periods or labor hours, and profitability deteriorates beyond initial expectations, this could affect the Group's financial position and operating results. As a countermeasure, the Group continuously reviews the total estimated cost and planned construction period for each order received, striving for appropriate cost management.

If a revaluation of work in process becomes necessary due to specification adjustments with customers or the occurrence of nonconformities in the manufacturing process, the recording of valuation losses could affect the Group's financial position and operating results. As a countermeasure, the Group regularly reviews the status of each project even after order receipt, striving to identify signs of deteriorating profitability in a timely manner.

The Group holds fixed assets for manufacturing high-quality special valves used under high-temperature and high-pressure conditions, and if a significant deterioration in the business environment reduces the profitability of these fixed assets, the recording of impairment losses could affect the Group's financial position and operating results. As a countermeasure, the Group formulates capital expenditure plans in line with long-term production plans, striving to prevent excessive investment.

Computers are used in nearly all areas of the Group's operations, including production and sales, and if increasingly complex and sophisticated cyberattacks or unexpected system failures occur, business activities, operating results, and financial position could be affected. As a countermeasure, the Group has built multi-layered defenses combining entry-point measures, internal measures (regular data backups), and exit-point measures (EDR implementation) to strengthen information security, as well as an early recovery system through maintenance contracts with vendors.

The possibility of industrial accidents occurring is not zero in factory site work in the manufacturing division and in periodic inspection work at power plants in the maintenance division, and if a serious industrial accident occurs, it could affect subsequent order receipt in addition to raising issues of social responsibility. As a countermeasure, the Group strives to prevent industrial accidents by maintaining complete work manuals, thoroughly implementing on-site training, and raising safety awareness through the Safety and Health Committee.