TAKAOKA TOKO CO., LTD.

If a decline in technical capability or other factors results in quality problems with products and services, loss costs from recalling, replacing, or compensating for defective products, as well as lost order opportunities, may occur and affect business performance. The company announced the "SQC First Reform" on October 28, 2024, and is promoting self-process completion, recurrence prevention, and proactive prevention activities as remedial measures in response to a series of inappropriate incidents. It is also working to reduce risk through planned human resource development and technology succession.

Regarding tangible and intangible assets such as operating assets and goodwill, if profitability declines due to changes in the business environment and recovery of the invested amount becomes unlikely, an impairment loss may be recorded, potentially affecting business performance. The company regularly monitors the reasonableness of future cash flows and business plans, and works to identify and respond to warning signs at an early stage.

If compliance issues arise, such as violations of domestic and overseas laws and regulations or harassment, business performance may be affected due to loss of social trust and restrictions on business activities. As a measure to prevent recurrence of the series of inappropriate incidents, the company has established the "Corporate Ethics Committee" chaired by the President and Representative Director, formulated the "Toko Takaoka Group Corporate Conduct Charter," established a corporate ethics consultation hotline, and conducts various training programs.

If the acquisition and development of diverse human resources does not proceed as planned and necessary personnel become insufficient, business performance may be affected through a decline in competitive advantage. The company is strengthening its response to human capital through OJT/OFF JT, rotation, expanded investment in human resources, and improved engagement.

If key materials used in the manufacture of core products, such as iron, copper, oil, and insulators, rise sharply in price due to market fluctuations or geopolitical risks such as prolonged tension in the Middle East, the resulting cost increases may affect business performance. The company aims to reduce this risk through securing inventory according to market conditions, diversifying suppliers, design changes, reflecting cost increases in selling prices, and ongoing cost reduction activities.

With the Power Equipment Business as a core business, sales to Tokyo Electric Power Grid Co., Ltd. account for 39.1% of consolidated net sales, indicating a high degree of dependence on sales to electric power companies, and the investment trends of electric power companies may significantly affect business performance. The company aims to diversify this risk by strengthening cost competitiveness and expanding sales across a wide range of industries and new markets.

If the development and commercialization of advanced technology does not proceed as planned and products cannot be brought to market at the appropriate time, business performance may be affected through a decline in competitiveness. Management conducts regular progress management, and the company works to strengthen technical capabilities through collaboration with universities, research institutions, and companies.

If important information is leaked or operations are suspended due to increasing and intensifying cyberattacks such as targeted attacks and ransomware, business continuity in procurement, production, logistics, and sales systems may be affected, impacting business performance. The company aims to minimize this risk through the implementation of both software and hardware security measures and through employee education and training.

If systems and regulations aimed at achieving carbon neutrality are rapidly strengthened and the Group's response lags behind, business performance may be affected through constraints on business activities and increased response costs. The company is working on developing environmentally friendly products, promoting energy conservation, and utilizing renewable energy, while also advancing its response through climate-related financial disclosures based on the TCFD recommendations.

If a large-scale disaster causes damage to production facilities, disruption in the procurement of raw materials and parts, or paralysis of logistics and sales functions leading to a halt in operations, business performance may be affected. In addition to implementing disaster prevention measures and drills at each site, the company is advancing BCP development including the supply chain to reduce the impact on business activities.