DKK-TOA CORPORATION

Environmental & Process Analytical Instruments account for a large proportion of sales, so trends in laws and regulations and fluctuations in product supply and demand directly affect business performance. In the Real Estate Leasing Business, tenant move-outs and similar events could also affect revenue. The Company has established a system for gathering and sharing information through participation in various industry associations and regular meetings with real estate management companies.

Supply delays or interruptions caused by the aging of component manufacturers' workforces or accidents could disrupt production activities, and continued increases in component and transportation prices could also put pressure on business performance. Cost increases beyond expectations may affect operating results and financial position. The Company is promoting in-house production of key components, use of alternative products, securing multiple procurement sources, and appropriate pass-through to selling prices.

The Company settles product imports in U.S. dollars under the domestic exclusive distributorship agreement with Hach Company, so exchange rate fluctuations beyond expectations could affect business performance. There is a risk that a weaker yen would increase import costs and put pressure on profitability. The Company hedges this risk through forward exchange contracts.

In the event of a large-scale natural disaster or pandemic, the suspension of production activities, delays in component procurement, system failures, and the incurrence of recovery costs could affect operating results and financial condition. The impact on business continuity could be widespread. The Company is working to minimize damage by establishing an emergency contact network and formulating a BCP (business continuity plan).

Stricter regulations, the introduction of carbon taxes, rising energy and logistics costs associated with climate change, and the impact of extreme weather on the Company and its supply chain could affect business performance. Both transition risks and physical risks may push up business costs. The Company is promoting BCP development, strengthening its supply system, and pursuing energy-saving initiatives.

If the Company's relative competitive advantage declines due to rapid technological progress, or if the launch of new products is delayed or cancelled, business performance could deteriorate. There is a risk that accelerating technological innovation in the analytical instruments market will change the competitive landscape. The Company is responding through timely revisions of its medium- to long-term development roadmap, planned development of engineers, and promotion of open innovation.

The Company holds a large amount of personal information on customers and business partners, as well as confidential information related to design, technology, and sales, so information leaks or information system failures caused by cyberattacks, unauthorized access, virus infection, and the like could affect business performance. As dependence on information systems increases, this risk tends to grow. The Company is responding by establishing a cross-organizational security management system, strengthening its systems, and providing employee education.

Due to the declining working population associated with the falling birthrate and aging population, and intensifying competition for talent, it is expected to become difficult to continuously secure the necessary personnel, and rising labor costs and increased recruitment and training costs could affect business performance. This is positioned as an important issue related to sustainable growth and future business continuity. The Company is responding by developing a diverse workplace environment, strengthening recruitment, enhancing training, and improving productivity through the promotion of DX.

The Company sells products to domestic and overseas sales distributors on a deferred payment basis, so the inability to collect receivables due to deterioration in a distributor's financial condition could affect operating results and financial position. There is also a risk that violations of laws and regulations by a distributor could damage the Company's brand image. The Company addresses this through credit risk management via credit limits and through enhanced guidance and education for distributors.

Hach Company is the Company's largest shareholder, holding 33.4% or more of voting rights, and is therefore in a position that could influence management, meaning its interests may not align with those of other shareholders. If the business alliance fails to produce the results originally expected, this could also affect business performance. The Company strives to build a favorable relationship through regular exchange of information and meetings.