The Nippon Signal Co., Ltd.

Sales are strongly dependent on capital expenditures by domestic railway operators, our major customers, and public investment by police and other public entities. If a decline in transport volume due to infectious diseases, disasters, or other causes affects transportation revenue, this could lead to a contraction in market size through reduced capital expenditure and public investment, potentially having a material impact on business performance. In addition, there is an inherent seasonality with sales concentrated toward the end of the fiscal period, making the business structure susceptible to demand fluctuations. As countermeasures, the Company has established a business continuity plan (BCP) and revised its infectious disease response regulations.

Railway Signaling & Safety Systems, traffic signal systems, and station automation systems support critical social infrastructure and therefore require extremely high safety standards. Should failures or malfunctions occur, this could cause serious disruption to public transportation and pose risks to the lives, property, and safety of users. As a result, the Company could face damage claims from affected parties, adversely affecting business performance. As a countermeasure, the Company has established a Safety and Trust Creation Center, which continuously conducts research and accumulation of safety theory as well as employee safety education.

Orders from domestic railway operators and government agencies such as the police are based on general competitive bidding, and intensifying price competition among participating companies could adversely affect business performance. In overseas business as well, price competition with European and Chinese companies is a particular concern, presenting a risk of declining profitability. As the Company Group continues to expand its overseas operations, responding to global competitive pressures remains an ongoing challenge.

If severe shortages or sharp price increases occur in raw materials and components such as semiconductors, this could adversely affect business performance and financial condition through rising manufacturing costs and delays in production plans. Since systems for transportation infrastructure require high quality and reliability, securing alternative supply sources may not always be easy. Disclosure in the securities report regarding specific measures to diversify procurement sources is limited, and addressing supply chain risk remains an important ongoing issue.

The Company's main production sites are concentrated in Saitama and Tochigi prefectures. In the event of a large-scale earthquake, typhoon, heavy rain, flood, or other natural disaster, there is a possibility of significant decline in production capacity, including suspension of operations, due to damage to production facilities or accidents during product transport and storage. As the head office is also located in the Tokyo metropolitan area, the scope of impact in the event of a widespread disaster is significant. As a countermeasure, the Company has established a business continuity plan (BCP) and conducts drills utilizing an employee safety confirmation system.

In the Company's active overseas expansion centered on Asia, political risks and climate change risks in various countries could delay business development. In addition, terrorism, conflict, war, infectious disease, and other events could force the Company to withdraw employees from business locations or exit businesses in order to ensure employee safety. Fluctuations in exchange rates associated with such events could also adversely affect business performance. The Company continues to monitor local risks and develop response regulations, but uncertainty remains high.

As overseas business expands, fluctuations in exchange rates triggered by geopolitical events such as terrorism, conflict, and infectious disease could adversely affect business performance. Due to business operations across multiple countries centered on Asia, foreign exchange exposure exists across multiple currencies. Disclosure in the securities report regarding specific hedging measures is limited, and the effectiveness of foreign exchange risk management remains a point of ongoing attention.

The Company is actively investing in technology development for new fields such as MaaS, autonomous driving, and robotics. However, if the size of new markets being considered for entry shrinks, or if delays in technology development force withdrawal from a new business, risk will remain until a new growth driver is secured. While this is a strategy aimed at reducing dependence on existing businesses, the practical application of new technologies involves uncertainty. The Company is accumulating technological expertise through participation in demonstration trials related to autonomous driving for railways and automobiles.

The Company holds important business information and confidential information of business partners. Should unforeseen cyberattacks or information leaks occur, resulting in data destruction, tampering, leakage, or system failures, this could adversely affect business performance. As a company providing systems that support social infrastructure, there is an inherent risk of being targeted by cyberattacks. As countermeasures, the Company has established information handling management regulations, strengthened the security of information systems, and provides IT security education for employees.

The majority of sales depend on capital expenditure and public investment by domestic railway operators and government agencies such as the police, meaning that changes in government fiscal policy and public investment policy directly affect demand. In addition, since orders are based on general competitive bidding, the stability of order intake is also affected by competitive conditions. While the Company is diversifying its revenue sources through new businesses and overseas expansion, at present it remains highly dependent on existing public investment.