NAGOYA ELECTRIC WORKS CO.,LTD.

The Social Infrastructure Business is highly dependent on public works projects undertaken by government bodies such as road administrators, and if improprieties such as documentation deficiencies occur in bidding procedures, the Company may be subject to suspension of business or disqualification from bidding. If the Company's construction business license (specific construction business: electrical construction work, telecommunications construction work, etc.) is revoked or a business suspension order is issued, this could seriously affect business performance and financial condition through damage to social credibility, contract cancellations, and other consequences. While the Company currently recognizes no facts that would constitute grounds for license revocation or similar action, the license is valid until August 2030 and must be renewed every five years.

While the Group possesses proprietary technology and patents as a pioneer in the Social Infrastructure Business, if competition intensifies due to competing similar products or if bid prices decline significantly due to unforeseen changes in the bidding system, this could affect business performance. Although the Group continuously works to improve its technological capabilities and strengthen cost competitiveness, changes in the competitive environment include factors beyond the Group's control.

The end users of the Social Infrastructure Business are primarily road administrators such as the Ministry of Land, Infrastructure, Transport and Tourism, expressway companies, and local governments, and shifts in government road development policy, delays in development periods, or changes in fiscal policy directly affect business performance. The Group is working to reduce its dependence on government bodies through new market development, new product development, and new business creation, but if these activities do not progress as expected, the impact on business performance may continue.

Supply chain disruptions caused by global infectious disease outbreaks or conflicts, as well as sharp rises in raw material prices, may result in longer lead times and price increases for material procurement. The Group has implemented measures such as gathering procurement status information, securing materials ahead of schedule, and redesigning products using alternative parts, but if this situation persists over the long term, it could affect business performance.

If production facilities and outsourcing partners suffer catastrophic damage due to natural disasters such as earthquakes or typhoons, this could result in decreased sales due to operational suspension and delays in production and shipment, as well as substantial recovery costs. The Group is working on disaster-resistant reinforcement of buildings, implementation of safety confirmation systems, and facilitating smooth business operations in remote environments, but the impact on business performance cannot be ruled out in the event of unforeseen circumstances.

Given the nature of its business handling confidential information held by customers, there is a risk of information leakage due to cyberattacks such as computer viruses and unauthorized access, or due to human error. While the Company implements security measures to prevent external information leaks and conducts regular security training, in the event that an information leak were to occur, it could result in claims for damages from customers and loss of credibility, potentially having a significant impact on business performance.

In the event of consolidation resulting from market restructuring, the Company could become a target of a hostile takeover. Although the Company has adopted takeover defense measures, if an acquisition were to occur, business performance could be affected depending on the acquirer's objectives and management policies. In addition, if the Group itself acquires other companies, business performance could be adversely affected if post-acquisition initiatives do not progress as planned.

If unforeseen defects or construction accidents occur in the development, manufacturing, or construction operations of products, the Company could be held liable for damages for serious losses incurred by customers. While the Company has taken out relevant insurance to cover product liability and contractor liability, the potential loss of social credibility in the event of damage could also affect business performance.

Due to the characteristics of government-driven demand based on "single-fiscal-year ordering and single-fiscal-year delivery," sales tend to be concentrated in the second half of the fiscal year, particularly in the fourth quarter. In FY2026 (ending March 2026), quarterly sales showed a pronounced skew, with ¥1,816 million in the first quarter and ¥7,582 million in the fourth quarter. In addition, if changes occur in order specifications, a timing gap may arise between when costs are incurred and when design change contracts are concluded, potentially causing a temporary decline in profitability.

Business development and expansion require securing and developing personnel with a certain level of technical capability, and the Group is working to develop engineers through mid-career and new graduate hiring combined with training and practical work experience. However, if the Group is unable to secure excellent personnel, it may become difficult to maintain the quality of products and services, which could affect business performance.