KIKUSUI HOLDINGS CORPORATION

Demand for electrical measuring instruments, etc. is affected by customers' capital expenditure trends and purchasing policies, and an economic downturn could adversely affect business performance and financial condition. In the fiscal year under review, fourth-quarter net sales were ¥4,273 million (29.1%), significantly larger than other quarters, and there is also a risk of seasonal concentration. As countermeasures, the Company is diversifying its markets through the development of solutions business in the four priority markets of e-mobility, next-generation energy, power semiconductors, and data centers, and through the promotion of sales DX.

In the electrical measuring instruments industry, diversification of customer needs and rapid technological progress continue, and failure to continuously provide attractive new products amid competition with rival companies could affect business performance and financial condition. The Company is promoting advanced technology development based on its product development roadmap and joint development with other companies, but given the rapid pace of technological innovation, this risk exists at all times. Maintaining a commercialization process based on analysis of customer needs and market changes is key to competitiveness.

With the expansion of overseas net sales and the expansion of overseas production outsourcing from the United States, China, Taiwan, and other countries, large fluctuations in foreign exchange rates could affect business performance and financial condition. Geopolitical risks such as the expansion of protectionist trade policies, Russia's invasion of Ukraine, the situation in the Middle East, and the Taiwan Strait crisis constantly exist as factors of fluctuation. The Company has built a structure that offsets the impact of exchange rate fluctuations by conducting both foreign-currency-denominated sales and foreign-currency-denominated purchases.

The Company is highly dependent on engineers with advanced technical capabilities and key personnel, and if securing and developing such personnel becomes difficult amid worsening labor shortages due to the declining birthrate, aging population, and shrinking working population, this could affect business performance, financial condition, and future growth. The Company has set three goals—"securing personnel who will carry the future," "personnel development," and "improving retention rates"—and is implementing measures such as strengthening recruitment activities, education and training, improving employee engagement, and base pay increases. The sense of personnel shortage among companies remains at a high level, and this is recognized as a risk that could materialize at any time.

The Company conducts business through local subsidiaries established in China, the United States, Germany, and India, but if events arise due to local legal regulations, customs, changes in international circumstances, tariff policies, etc., this could affect business performance and financial condition. The Company recognizes that this risk exists at all times due to legal reforms and changes in international circumstances in each country. It carries out appropriate personnel dispatch to overseas subsidiaries and shares risk information and discusses countermeasures regularly through web conferences.

The Company currently recognizes that it is not infringing on any third party's intellectual property rights, but there is no guarantee that litigation or claims will not be brought in the future, and if a large damages claim were to arise, it could develop into a major issue. Although the likelihood of occurrence is recognized as low, the impact if it materializes would be significant. The Company conducts prior art and patent conflict investigations within the development process and patent searches through patent firms to prevent such issues before they occur.

Although the Company manufactures products based on international quality assurance standards, should a product defect occur, it could result in significant response costs and loss of trust, affecting business performance and financial condition. The likelihood of occurrence is recognized as low, but a serious defect could develop into a major issue. The Company has established systems including defect prevention at all stages based on its "Quality Manual," regular internal audits, and the establishment of a Product Liability Countermeasures Committee.

If a large-scale disaster occurs, it could result in restrictions on business activities, decreased productivity, production delays due to disruption of parts supply, and loss of sales opportunities, which could affect business performance and financial condition. This is recognized as a risk that could arise unexpectedly, and the impact if it materializes would be significant. The Company has established a system whereby an "Emergency Response Headquarters," headed by the President and Representative Director as the highest authority, is set up based on the "Basic Crisis Management Regulations," and has established a response policy that prioritizes ensuring the safety of human life above all else.

As the importance of information increases with the advancement of IT, if information leakage or computer virus infection, etc. were to occur, it could lead to a loss of trust and affect business performance and financial condition. The likelihood of occurrence is recognized as low, but the impact if it materializes would be significant. Based on its "Information Security Policy," the Company is working on risk analysis of the latest threats, employee education, introduction of advanced security technologies, and improvement of incident response capabilities.

Delays in responding to climate change, such as reducing greenhouse gas emissions and transitioning to renewable energy, or inadequate waste management and chemical substance management, could lead to a decline in social trust. Under its "Sustainability Policy," the Company is working to reduce its environmental burden through CO2 emissions reduction, waste reduction and recycling promotion, and environmentally conscious procurement. Amid growing social demands for responses to climate change, continued strengthening of these efforts is required.