SEIWA ELECTRIC MFG. CO., LTD.

In the Information Equipment Business and Lighting Equipment Business, the proportion of public works in net sales is extremely high (government demand ratio of 49% in both FY2024 (ending December 2024) and FY2025 (ending December 2025)), and increases or decreases in public works budgets directly affect operating results. The Company is working to reduce this dependency through the development of new private-sector markets, new product development, and creation of new businesses, but the structural dependence continues.

Price increases due to market fluctuations in raw materials, parts, and outsourced assembly products, as well as supply shortages or interruptions due to unforeseen circumstances at suppliers, may affect operating results. As a countermeasure, based on BCP, the Company examines multi-vendor procurement from the development stage and secures second vendors to avoid dependence on specific suppliers.

For large-scale projects with long construction periods from order receipt to delivery, changes in economic conditions during the period may cause significant increases in raw material prices and labor costs, creating a risk of discrepancy between the estimated cost at the time of contract conclusion and the actual cost. This cost discrepancy may directly affect operating results, and the risk of loss is particularly likely to materialize in the case of fixed-price contracts.

The Information Equipment Business and Lighting Equipment Business are subject to regulation under the Construction Business Act and the Electrical Construction Business Act, and failure to renew permits or registrations could impede business continuity. In addition, if improper bidding practices such as violations of the Antimonopoly Act or bid rigging involving government entities occur, in addition to business prohibition or suspension orders and disqualification from bidding, loss of public trust and claims for damages could have a material impact on operating results. As countermeasures, the Company has established a Corporate Ethics Committee, thoroughly enforces compliance, and conducts internal audits once a year covering all departments and subsidiaries.

Orders in the Information Equipment Business and the public facility-related Lighting Equipment Business are based on the general competitive bidding system, and major changes to the system or a decline in bid prices due to intensified competition may affect operating results. A dedicated department has been established within the Sales Headquarters to consolidate and analyze bidding information and handle comprehensive evaluation measures (preparation of technical documents), aiming to improve bidding competitiveness.

If a system risk arises from unexpected unauthorized access or cyberattacks, it could affect operating results and financial condition. The Company has established information security management regulations, built a management and supervisory structure led by information management officers and managers, and established internal systems and operational rules in response to the Personal Information Protection Act and the Number Act, thereby developing a crisis management structure; however, complete protection remains difficult.

Against the backdrop of a declining working population due to the falling birthrate and aging population, if the Company is unable to secure sufficient necessary personnel at the necessary time, or if capable personnel leave, business development could be constrained, potentially affecting operating results. The Company is addressing this as an important issue through the promotion of human resource development focused on "growth of people," the succession of technical know-how, and the development of an environment to enhance employee motivation.

In production and sales activities in Southeast Asian countries, China, and other regions, factors such as economic conditions, natural disasters, war and terrorism, laws and regulations, and supplier supply systems in each country may affect operating results. In addition, there is a risk that fluctuations in foreign exchange rates could affect receivables and payables, net sales, and profits denominated in foreign currencies; although the Company takes various measures to mitigate this, complete avoidance is stated to be impossible.

If a serious defect or flaw occurs in a product, loss of public trust and claims for damages could affect operating results. The Company records a provision for product warranties in preparation for warranty costs, and has established a system for consolidated reporting of complaints to the Quality Assurance Department as well as a process for reporting to and deciding on responses through the Crisis Management Committee.

Loan agreements with multiple financial institutions in a syndicated format include financial covenants, and a breach of these covenants could affect the Company Group's cash flow. Because the syndicated loan involves a contract structure participated in by multiple banks, a breach could trigger a chain reaction, such as demands for lump-sum repayment.