SEIKO ELECTRIC CO., LTD.

The Group's business is highly dependent on capital expenditure trends in power systems, power receiving/distribution systems, control systems, and other areas. If domestic and overseas capital expenditure trends change beyond expectations, this could affect operating results and financial condition. Since profit plans are formulated incorporating forecasts of capital expenditure trends, there is a risk that deviations from forecasts could directly translate into fluctuations in business performance. As countermeasures, the Group monitors market trends in each business and works on promoting new businesses and expanding overseas operations.

Since sales of electrical equipment, water treatment equipment, and similar products to government agencies and other public bodies are conducted through bidding, changes in bidding systems or declines in bid prices due to excessive competition may put pressure on profitability. There is a risk that loss of order opportunities or deterioration in profitability could directly affect operating results and financial condition. As a countermeasure, the Group is working to strengthen the analysis of bidding information and improve its competitiveness in bidding.

The Group is subject to the regulations and laws of the countries and regions in which it operates, and conducts its domestic operations under Special Construction Business Licenses and General Construction Business Licenses obtained pursuant to the Construction Business Act. Future changes in regulations or laws, or any violation of laws that may occur, could result in revocation of licenses and permits, hindering business continuity and affecting operating results and financial condition. As countermeasures, the Group is strengthening its compliance framework, conducting prior confirmation of various regulations and laws, and carrying out awareness-raising activities to ensure compliance.

The Group operates businesses in China and Southeast Asia, and deterioration of the economic or political situation, changes in laws and regulations, or deterioration in labor relations in these regions may affect operating results and financial condition. Geopolitical risks or sudden changes in local regulations could lead to the risk of local operations being suspended or transactions being scaled back. As a countermeasure, in addition to maintaining close communication with local operations, the Group continuously gathers information from business partners, financial institutions, and other sources.

Since many of the Group's businesses involve contract agreements in which payment is made after product delivery, if a business partner experiences credit difficulties before payment is received, this could result in the inability to collect trade receivables, affecting operating results and financial condition. Given the nature of contract work, credit risk tends to concentrate in the period between completion of construction and receipt of payment. As a countermeasure, the Group strictly evaluates business partners based on credit investigations, sets credit limits, and in principle conducts transactions within those limits.

The Group holds securities and other assets for business purposes, and fluctuations in their market value may affect operating results and financial condition. In addition, with respect to fixed assets, if it becomes necessary to record impairment losses due to deterioration in the business environment or other factors, this could have a significant impact on financial condition. As countermeasures, for securities, the Board of Directors examines the rationale for holding each individual security and determines the appropriateness of continuing to hold it, while for fixed assets, early signs of impairment are identified through monitoring of the management plans of each business division.

Each business division of the Group conducts research and development for product development and commercialization based on market needs. If development plans do not proceed as scheduled and market launch is delayed, the Group may lose order opportunities to competitors who move ahead, affecting operating results and financial condition. As a countermeasure, the department overseeing research and development monitors the status of development and manages progress against development plans through regular reports of results from each business division.

If damages arising from liability for non-conformance with contracts or product liability occur with respect to the Group's products, the resulting compensation costs or loss of reputation may affect operating results and financial condition. Because the Group handles products such as power and control systems that require high reliability, quality issues can have a significant impact on customers and may also pose risks to business continuity. As a countermeasure, the Group has established a framework for cross-group quality control and improvement activities, and continues efforts to ensure and improve quality.

If unexpected accidents, disasters, infectious diseases, or other events disrupt the activities of the Group or its sales partners, suppliers, and others, this may affect production, delivery schedules, and sales, thereby affecting operating results and financial condition. There is a risk that such disruptions could spread across the entire supply chain, resulting in a broader impact beyond damage to a single business site. As countermeasures, the Group has developed emergency response manuals, established methods for confirming the safety of employees and emergency contact systems, and conducts drills assuming the occurrence of disasters.

The Group's business performance tends to be concentrated in sales and profit during the first and fourth quarters, depending on the execution status of customers' capital expenditure budgets, resulting in a structure with significant quarter-to-quarter performance fluctuations. This seasonality makes it difficult to level out operations at the Koga Plant, the Group's production site, posing a risk that could affect the efficiency of fixed cost burden. As a countermeasure, the Group implements measures to level production by carefully reviewing order and construction plans, and works to secure stable production output at the Koga Plant.