NKK SWITCHES CO., LTD.

The Group conducts global business operations with both overseas sales ratio and overseas production ratio exceeding 60%. Prolonged US-China conflict, strengthening of protectionist trade policies, tariff increases, expansion of import/export restrictions and economic sanctions, regional conflicts and rising political tensions may affect operating results and financial position. Given the business structure's high dependence on overseas operations, the materialization of geopolitical risk could directly impact both sales and production.

Since prices for transactions denominated in foreign currencies are subject to fluctuations in exchange rates, this may affect operating results, financial position, and competitiveness. In addition, the financial statements of overseas subsidiaries denominated in local currencies are translated into yen upon consolidation, and translation differences affect consolidated results. As the overseas sales ratio exceeds 60%, sensitivity to exchange rate fluctuations is relatively high.

Natural disasters such as typhoons, floods, earthquakes, and tsunamis are becoming more severe and frequent. If a disaster exceeding expectations occurs, there is a risk that business activities could be disrupted due to the suspension of business office functions, damage to facilities, interruption of electricity, water, and gas supplies, delays in parts supply from suppliers, and damage to the supply chain. As countermeasures, the Group has implemented measures such as relocating product and parts inventory and automated production equipment to safe locations based on hazard maps, but it is difficult to fully prepare for events exceeding expectations.

Many of the parts and materials required for production are procured from suppliers outside the Group, and procurement may become difficult due to delivery delays, product defects, supplier consolidation, deteriorating supplier management conditions, compliance violations, or environmental regulations. In addition, procurement costs are rising due to increases in raw material costs, logistics costs, and labor costs, and if these conditions persist over the long term, they may adversely affect business performance and financial position.

If a violation of relevant laws and regulations in Japan or overseas occurs, it could lead to large-scale damage claims, a decline in social credibility, or a serious situation threatening the continuity of the company. As a countermeasure, a Governance Committee has been established directly under the Board of Directors to monitor and oversee compliance status across the Group, but the risk that a single incident could develop into a serious risk is increasing due to rapid changes in the business environment.

The Group recognizes information leakage or business suspension caused by cyberattacks, virus infections, or system failures, as well as information leakage caused by insiders, as important risks. The Group has established an "Information Security Policy: Basic Security Policy" and implements measures such as unauthorized intrusion prevention, data encryption, and employee education and awareness activities, but if such incidents occur, they may affect business operations, performance, and financial position.