Fenwal Controls of Japan, Ltd.

In the Medical business, sales to Toray Medical Co., Ltd. account for approximately 90% of total sales, meaning that the company's business strategy and business trends could directly affect the financial position and operating results of the Group. If the customer scales back its business or changes its policies, there is a risk that sales in the Medical business could decline significantly. No specific countermeasures by the Group are disclosed in the securities report.

Following the disclosure on March 31, 2022 of misconduct related to certain products, the Group has implemented recurrence prevention measures such as strengthening the quality assurance system and conducting compliance training based on recommendations from the special investigation committee. However, even with these preventive measures, compliance risks cannot be completely eliminated, and if a legal violation occurs, it may lead to a decline in social credibility and brand image, as well as damages payments, which could affect the financial position and operating results. This is a risk based on a concrete past incident of misconduct, and the impact of any recurrence would be significant.

The Group has implemented measures such as establishing a Compliance Committee, audits by auditors and the Internal Audit Office, establishing reporting and consultation channels for officers and employees, and issuing compliance declarations; however, it may not be possible to completely avoid situations that violate laws and regulations. If a legal violation occurs, it could lead to a decline in social credibility and brand image, as well as the payment of damages, which could affect the financial position and operating results. This is an important risk area requiring management in parallel with product quality risk.

Some of the products handled by the Group are subject to regulation under the Fire Service Act or the Act on Securing Quality, Efficacy and Safety of Pharmaceuticals, Medical Devices, Regenerative and Cellular Therapy Products, Gene Therapy Products, and Cosmetics, and depending on regulatory trends, there is a risk that production and sales activities could be impeded. In addition, if a legal violation occurs, it could also affect certification by various accreditation bodies. While the Group strives to ensure compliance in its day-to-day business activities, a serious violation could affect the financial position and operating results.

If the Group is unable to secure the necessary quantities of key raw materials such as electrical and electronic components, metals, and plastics due to a sharp increase in demand or a decrease in supply, this could disrupt production activities and affect the financial position and operating results. If global supply chain disruptions such as semiconductor shortages become apparent, there is a risk of rising procurement costs and production delays. No specific countermeasures such as diversification of procurement sources are disclosed in the securities report.

A portion of product manufacturing is outsourced to external partners, and while credit checks on technical capability and supply capacity are conducted when selecting outsourcing partners, there remains a possibility that insufficient production capacity or unexpected halts in operations at outsourcing partners could prevent adequate product supply. If problems arise regarding the business continuity of outsourcing partners, securing alternative suppliers may become difficult, creating a risk of delivery delays to customers and lost business opportunities.

The Group has established management regulations and countermeasure manuals based on its "Basic Policy on Information Security" and has strengthened measures such as malware countermeasures (EDR), intrusion prevention, and information leakage prevention; however, if an information security incident such as a cyberattack occurs, it could lead to a decline in social credibility and brand image, damages payments, and legal penalties, which could affect the financial position and operating results. Strengthening security in response to telework arrangements also remains an ongoing challenge.

There is a risk that manufacturing, design, or warning/instruction defects in the products handled by the Group could cause harm to third parties, and if the Group is found liable, this could affect business continuity, financial position, and operating results. Although the Group strives to maintain quality, given the diversity of its products (fire-fighting equipment, medical equipment, semiconductor-related equipment, etc.), there is a risk of damages claims and product recall costs arising from product defects.

Hot plates and sensors for the semiconductor market are susceptible to market business cycle trends, while Artificial Kidney Dialysis Equipment and Fire Pumps & Fire Pump Trucks may be affected by national and local government policies. There is a risk that an economic downturn or policy changes could cause demand to decline simultaneously across business segments, affecting the profitability of the overall business portfolio.

The Group's growth and profitability depend heavily on securing and developing personnel with unique specialized technical skills and skilled construction management expertise. Amid the declining birthrate, aging population, and growing shortage of engineers, if the Group is unable to secure and develop such personnel as planned, this could lead to a decline in technical capabilities and the loss of order opportunities, which could affect the financial position and operating results.