NIHON DEMPA KOGYO CO., LTD.

The quartz crystal industry is highly competitive, and there is a risk that price declines may exceed expectations or that competitive advantage may not be maintained. Substantial research and development and capital investment are required to maintain competitiveness, and if the assumptions underlying investment plans change, there is a possibility that investments may not be recovered or opportunity losses may occur. "Industry restructuring risk" has also been identified as a key managed risk, requiring a response to changes in industry structure.

The Group conducts global business operations and is subject to export and import controls and trade regulations imposed for national security reasons. "Decoupling risk" and "risk of reputational damage from military use of products" have been identified as key managed risks, and there is a possibility that intensified regulations resulting from rising geopolitical tensions could lead to business suspension or increased response costs. The Group formulates and implements risk management plans to address changes in regulations and laws.

The value, after conversion into yen, of foreign-currency-denominated financial statements of overseas subsidiaries may fluctuate depending on the exchange rate used at the time of conversion, potentially affecting business performance and financial condition. Although hedging and other measures are implemented for product sales worldwide, there is a risk that exchange rate fluctuations exceeding forecasts cannot be fully addressed. While efforts are made to minimize short-term impacts, medium- to long-term exchange rate fluctuations directly affect earnings.

Multiple financial and accounting risks exist, including valuation losses on inventories, impairment losses on fixed assets, impairment of investment securities, changes in deferred tax assets, and changes in defined benefit liabilities. Sudden changes in demand, significant declines in selling prices, deterioration of performance forecasts, tax reform, and changes in underlying assumptions may affect the recorded amounts of each asset and liability. If these risks materialize, they could adversely affect the Group's business performance and financial condition.

Unforeseen contingencies such as natural disasters including earthquakes, the spread of infectious diseases, and heightened geopolitical risk may have a significant impact on the Group's business performance. Although the COVID-19 pandemic has largely subsided, risks remain of an economic downturn or operational suspension due to a global resurgence. While efforts are made to avoid transaction concentration risk through the global expansion of production and sales, complete elimination is difficult.

While measures such as establishing internal regulations and providing employee training have been implemented to protect customers' personal information and confidential information, information leaks cannot be completely prevented. If an information leak occurs, it may result in a decline in competitiveness and credibility, as well as liability for damages to customers. "Information security risk" has been identified as a key managed risk, and risk management plans are formulated and implemented under a dedicated response structure.

If stable procurement of the wide range of raw materials necessary for product manufacturing cannot be maintained, it may become difficult to secure expected profits, resulting in risks such as process delays, opportunity losses, and liability for damages to customers. Disruptions in the supply chain could spread throughout the entire production process, and the Group is particularly susceptible to changes in the global procurement environment and geopolitical risks. Each department strives to avoid such occurrences and respond promptly when they arise.

The Group is subject to a wide range of government regulations in its domestic and overseas operating locations, including trade, antitrust, patent, tax, foreign exchange control, and environmental regulations, and changes in regulations or laws may result in business suspension and other impacts on performance. Increased response costs associated with regulatory tightening are also anticipated, and the scope of risk is extensive given the Group's global operations. The Group continuously monitors regulatory developments in each country and takes appropriate action.

While the Group actively promotes the development and recruitment of personnel, failure to implement these initiatives as planned may adversely affect the Group's growth and profitability. In the quartz device industry, where technological innovation is progressing rapidly, securing specialized personnel is a fundamental risk factor underlying the maintenance of competitiveness. This has been identified as a key managed risk, and the implementation status of countermeasures is overseen by the Risk Management Committee.

While efforts are made to reduce environmental impact under the "NDK Group Basic Environmental Philosophy and Policy," it is not possible to completely eliminate the occurrence of environmental pollution resulting from business activities. If environmental pollution occurs or is discovered, costs for remediation and other countermeasures may arise, adversely affecting profit and loss. "Climate change response risk" has been identified as a key managed risk, and risk management plans are formulated and implemented accordingly.