NAKAKITA SEISAKUSHO CO.,LTD.

All products of the Group are made to order, and major clients are concentrated in the shipbuilding industry and plant-related industries such as the electric power industry. Since capital expenditure trends and business fluctuations in these industries directly affect order volumes, a downturn across these industries could have a significant impact on performance. The Group addresses this risk by continuously gathering information and engaging in order-taking activities, but it is difficult to completely eliminate the risk of demand fluctuations.

The Group has obtained ISO9001 certification and has established and operates a quality management system; however, should a complaint or accident arise from a product defect, this could adversely affect performance in addition to damaging the Group's social reputation. Since various valves and Remote Control Devices are used in applications directly related to safety in shipbuilding, plants, and other settings, the impact of quality problems could be particularly severe. Although the Group strives to strengthen its quality assurance system through continuous improvement, it is difficult to reduce this risk to zero.

If the market value or substantial value of shares held by the Group falls significantly below book value with no prospect of recovery, the Group must recognize a valuation loss, and recording a substantial valuation loss could adversely affect performance. As a countermeasure, the Board of Directors reviews the significance of holding each individual stock once a year from the perspectives of economic rationale, the status of business relationships, and future outlook, and adopts a policy of reducing holdings in stocks for which such significance cannot be confirmed. Nevertheless, the risk of a sudden valuation loss arising from an abrupt change in market conditions remains.

All of the Group's domestic production sites are concentrated in Osaka Prefecture, and in the event of a large-scale earthquake, storm, flood, or other natural disaster, production capacity could decline significantly due to a suspension or reduction of operations, which could have a major impact on performance. The geographic concentration of production sites is a structural issue that makes risk diversification difficult, and there is concern that alternative production means would be limited in the event of a disaster. The Group strives to reduce this risk by improving the workplace environment, introducing a system for confirming employee safety, conducting disaster prevention drills, and establishing a data backup system.

The Group holds important information assets, including client information, development know-how, and employees' personal information. Should information be lost due to a system failure, or should information leak due to a computer virus or unauthorized access, this could cause losses not only to clients but also have a significant impact on the Group's performance and business continuity. The Group addresses this risk by establishing various committees, developing various regulations, building an information security management system, and conducting internal training; however, threats continue to evolve due to the increasing sophistication of cyberattacks and other factors.

Should a serious occupational accident occur during factory work in the manufacturing division or during work at plants such as ships or power stations in the service division, this could damage social trust and affect performance and business continuity. Additionally, the spread of an infectious disease could restrict operations and have a significant impact on performance. Given the nature of the business, which involves on-site work, thorough occupational health and safety management is a prerequisite for business continuity.

Securing specialized personnel with various qualifications and skills is essential to the Group's operations; however, against the backdrop of a declining working population due to the falling birthrate and aging population, failure to secure the necessary personnel could affect performance and business continuity. Highly specialized work such as valve manufacturing, Remote Control Device manufacturing, and plant services is difficult to replace, and there is also an inherent risk regarding the transfer of technical skills due to the aging and retirement of skilled workers.