Osaki Electric Co., Ltd.

Smart meters are subject to a 10-year verification validity period under the Measurement Act in Japan, creating a structural risk in which demand declines for a certain period following a temporary surge in demand. In addition, since major customers account for more than half of net sales, changes in customers' business performance and capital expenditure plans directly affect the Company's results. As countermeasures, the Company is expanding its business into Oceania, Europe, and emerging markets, and stimulating demand and developing new customers through the introduction of new products, thereby seeking to diversify the impact of demand fluctuations.

Smart Meters compete with leading companies both in Japan and overseas, and price is an important competitive factor. If prices decline significantly, or if products are sold in large volumes at prices below projections, this could adversely affect business performance. The Company strives to avoid price competition by selecting markets that value quality, safety, and added value, and through continuous improvement of products and services, but complete avoidance is considered difficult.

Geopolitical risks (such as difficulty in procuring crude oil due to military conflicts involving the U.S., Israel, and Iran) may make it difficult to procure petroleum-derived raw materials and parts in a timely manner, potentially disrupting production activities. There is also a risk that unnecessary materials may accumulate due to decreased demand resulting from changes in customers' policies. Regarding China's rare earth export control measures and the global semiconductor memory shortage, the Company states there is currently no impact.

There is a risk that the prices of procured materials such as semiconductors and metals may rise due to supply-demand conditions, exchange rate fluctuations, and inflation. Currently, prices of copper products and petrochemical products, which are key materials for mainstay products, are rising, and the Company is working to mitigate the impact through design changes and reviews of materials used. If these cost increases cannot be sufficiently passed on to product prices, business performance may be adversely affected.

The overseas sales ratio in consolidated net sales for FY2026 (ending March 2026) reached approximately 40%, with operations centered on Oceania, Europe, and emerging markets. Overseas, political and economic conditions, geopolitical risks such as conflicts and terrorism, and uncertainty in laws and regulations are higher than in Japan, and sudden market changes or delays in projects or production/shipment could affect business performance. The Company is working to reduce risk by diversifying production sites across multiple countries and reviewing markets and sales destinations as needed based on risk information.

In overseas business, fluctuations in exchange rates may cause changes in the earnings and assets of overseas subsidiaries. The Company hedges through forward foreign exchange contracts, but sharp exchange rate fluctuations may affect business performance and financial condition. Given that the overseas sales ratio has reached approximately 40%, sensitivity to exchange rate movements is at a correspondingly high level.

Although the Company has established a strict quality control system for in-house production and outsourcing, there is no guarantee that quality problems will not occur in the future. If product recalls, replacements, or compensation claims occur, business performance may be affected. Since Smart Meters are a social infrastructure product, the scope of impact in the event of a quality problem could be extensive.

There is a risk of development delays due to slow response to technological changes or a shortage of engineers. There are also risks that the Group's intellectual property rights may be infringed, or that the Group may unintentionally infringe on the intellectual property rights of third parties, resulting in claims for damages or litigation. The Company is strengthening R&D investment to enhance the competitiveness of its products and services, but if these risks materialize, business performance may be affected.

There is a risk that the Company may be unable to secure the human resources necessary to advance its management plans due to intensifying competition for recruitment and a shrinking labor force. The Company is working on continuous recruitment of new graduates and experienced personnel, developing training programs, establishing fair evaluation and compensation systems, and providing a comfortable working environment, but if a shortage of human resources occurs, it may hinder the realization of medium- to long-term business strategies.

Large-scale natural disasters such as earthquakes and typhoons in Japan and overseas, accidents such as fires, and the outbreak and spread of epidemics may cause delays in customer orders or long-term suspension of production and shipment. If such events occur, business activities may be disrupted, affecting business performance and financial condition. As a globally operating company with business sites in Japan and overseas, the risk of simultaneous occurrence in multiple regions must also be considered.