NFK HOLDINGS CO.,LTD.

The Industrial Furnace Combustion Equipment Business depends on demand for equipment used in industries such as steel, automotive, and petrochemicals, and there is a risk that demand may decline due to macro factors (decreased overall demand, rising interest rates) or micro factors (rising costs, intensifying competition). The Electronics Business is strongly affected by fluctuations in supply and demand in semiconductor-related markets, and there is a possibility of sales delays due to customers suspending or postponing capital expenditure, as well as opportunity losses when demand surges suddenly. Both businesses have a structure in which changes in the external environment directly affect business performance.

In the Industrial Furnace Combustion Equipment Business, machine parts made of metal products are a major cost factor, and if increases in procurement costs due to rising crude oil prices or exchange rate fluctuations cannot be passed on to product prices, this will adversely affect business performance. In the Electronics Business, materials and parts that are difficult to substitute are procured from specific manufacturers and trading companies, and disasters or deteriorating business conditions at suppliers, as well as supply shortages or price increases, affect production plans and cost structures. There is also a risk of production delays and delivery delays due to outsourcing partners becoming unable to operate.

In the Industrial Furnace Combustion Equipment Business, orders are often received for highly customized products tailored to customer needs, and cost overruns during the manufacturing process or defects occurring after delivery may adversely affect business performance. In the Electronics Business as well, if accidents involving the company's own equipment or product defects and quality issues occur, there is a risk of a loss of customer trust and claims for damages. In both cases, a review and confirmation system staffed by experienced personnel with technical expertise is maintained, but the risk cannot be completely eliminated.

In the Industrial Furnace Combustion Equipment Business, there is a risk that competitiveness may decline as competitors develop advanced technologies or supply lower-cost products. The Electronics Business faces rapid technological innovation and drastic changes in customer needs, and a delayed response could lead to reduced competitiveness and deteriorating business performance. Continuous technological development and rapid response to customer needs are essential in both businesses.

In certain regions, legal restrictions may prevent adequate protection of intellectual property, making it impossible to prevent third parties from manufacturing and selling similar products. There is also a risk that the value of the Group's intellectual property could decline if other companies develop superior technologies. In the Electronics Business, there is a risk of inadvertently infringing on third parties' intellectual property rights when introducing new technologies, which could affect the financial position through litigation or claims for damages.

While handling customers' confidential and technical information, unauthorized access, cyberattacks, or information leaks caused by employee negligence could result in loss of trust and claims for damages, potentially having a material impact on business performance. If the head office and various sites are damaged by earthquakes, wind and flood damage, fires, the spread of infectious diseases, or power supply disruptions, there is a risk of an adverse impact on business results and financial position. Developing a business continuity plan (BCP) has become an important issue.

Due to the increasing proportion of overseas sales in consolidated net sales and increased procurement of parts from overseas, significant fluctuations in exchange rates may affect the financial position and business results. In the Electronics Business as well, there is a risk that exchange rate fluctuations and rising raw material prices could affect profitability. With the expansion of overseas operations, exposure to foreign exchange risk is expected to continue expanding in the future.

Highly specialized engineers with expertise in combustion technology, heat treatment technology, LSI/FPGA design technology, and other fields form the foundation of the business, but there is a risk that securing and developing the necessary personnel may not proceed as planned due to the declining birthrate, aging population, and shrinking labor force. If the retirement of experienced engineers results in insufficient transfer of technology and skills, this may affect business results and financial position. Given the high degree of dependence on highly specialized personnel, recruitment, training, and technology transfer initiatives are important management issues.

Castrico Co., Ltd., which became a consolidated subsidiary in August 2025, has only recently joined the consolidated Group, and there is a possibility that the development of management systems may not keep pace with business growth. If inadequacies in the management system result in legal violations or deficiencies in licensing procedures, there is a risk of an impact on the business and performance of the Group as a whole. The company's management divisions are working to strengthen management systems, including internal controls, but the risk remains.

In the Electronics Business, transactions with specific customers account for the majority of sales, and if these customers experience deteriorating business performance, change their investment policies, or reduce transactions, this could have a material impact on the Group's overall business results and financial position. The Group is working to reduce this dependence by actively pursuing new customer development and expanding and strengthening transactions with existing customers, but concentration risk remains high at this time.