NIPPON CHEMI-CON CORPORATION

Inflationary pressures stemming from U.S. tariff policies and changes in monetary policy in various countries, as well as increases in energy and raw material prices due to geopolitical risks, could raise manufacturing costs and affect the profitability of the Group. In addition, production constraints on PCs and electronic devices caused by semiconductor supply shortages could reduce demand for electronic components, posing a risk to order intake. On the other hand, the Group continues to strengthen production capacity for large-sized aluminum electrolytic capacitors and invest in the development and expanded production of high-capacity, high-output hybrid capacitors, primarily for power supply applications in AI servers, in order to capture demand growth opportunities.

The ratio of overseas sales to consolidated net sales reached 80.8% in FY2026 (ending March 2026), meaning that exchange rate fluctuations directly affect business results and financial position. Although the Group hedges through foreign exchange forward contracts and other means, there is no guarantee that the entire exposure will be covered, and there is a risk that, when translating the financial statements of overseas subsidiaries into yen, fluctuations in the translation rate could cause changes in yen-denominated results even without any change in value on a local currency basis.

If price competition intensifies with domestic and overseas competitors in aluminum electrolytic capacitors, the Group's mainstay product, this could not only depress profitability but also lead to a decline in global market share. Fluctuations in production and sales costs by country and region, rising material costs, and technological innovation could all become factors intensifying competition. For FY2026, a supply shortage is expected due to a surge in demand, and price declines are not anticipated; however, the Group is working to strengthen its competitiveness through cost reductions leveraging its integrated production system from material development to product sales, as well as through the development and expanded sales of high-value-added products.

Rising logistics costs, labor costs, and raw material costs are driving up procurement prices for raw materials including aluminum foil and chemicals, becoming a cost-increasing factor, and difficulty in procurement could lead to delays in product shipments. Geopolitical tensions, such as those represented by the conflict in Ukraine and the situation in Iran, have become an ongoing procurement risk, and the increase in end-of-life (EOL) products is also making stable procurement more difficult. The Group is working to reduce these risks through measures such as purchasing from multiple suppliers, periodic credit management of suppliers, and promoting local overseas procurement.

Although the Group manufactures products in accordance with international quality standards such as UL standards and AEC-Q200, there is no guarantee that defects will not occur in any products in the future, and a large-scale product defect could affect business results and financial position. Although the Group has product liability insurance, there is no guarantee that it will sufficiently cover the amount of damages, and the Group is working to strengthen quality control by obtaining ISO9001 and IATF16949 certification at all production sites, while also establishing a system for rapid response in the event a defect occurs.

The costs of complying with domestic and overseas laws and regulations, as well as criminal penalties, fines, and damages claims in the event of violations, could affect business results and financial position. Regarding the case involving fines for competition law violations related to aluminum electrolytic capacitor transactions brought by the Taiwan Fair Trade Commission, a settlement was reached on January 13, 2026, under which the Company and others will receive a total refund of NT$345.73 million (¥1,648 million), and all litigation related to competition law violations has now concluded. Meanwhile, the subsidiary Singapore Chemi-Con (Pte) Ltd. has been named in a damages lawsuit filed by Dyson Manufacturing Sdn. Bhd. in the Singapore International Commercial Court seeking GBP 145,544,762, and SCC is presenting arguments and evidence aimed at denying liability.

Natural disasters such as earthquakes and the spread of infectious diseases could damage facilities, disrupt the supply of electricity and water, halt production, cause markets to contract, and lead governments to request business suspensions, all of which could affect business continuity. The Group prioritizes the safety and health of its employees and stakeholders above all else, implementing infection prevention measures such as working from home, flextime, and the use of remote work tools.

As a transition risk, there are concerns about increased electricity costs, fuel costs, material costs, and tax burdens due to the introduction of carbon taxes, carbon pricing, and emissions trading systems, as well as a decline in sales resulting from failure to respond to customers' climate change response requirements. As a physical risk, the intensification of extreme weather events could damage production sites or disrupt supply chains, potentially leading to business interruption and additional costs. The Group, centered on its Energy Conservation Measures Subcommittee, is promoting CO2 emissions reduction, the introduction of renewable energy, the review of BCPs, the strengthening of disaster prevention equipment, and the establishment of a multi-site production system.

Due to intensifying competition for talent in the labor market, widening skill gaps, talent outflow, and delays in development initiatives, the Group may not be able to secure and develop the human resources necessary to realize its management strategy as planned. As a result, there is a risk that business operations or the execution of management strategy could be hindered, affecting business results and financial position. The Group is working to build the necessary human resource portfolio, strengthen recruitment, enhance education and training, promote diversity, and improve employee engagement.

If confidential information is leaked, data is tampered with, or systems are shut down due to external cyberattacks or unauthorized access, this could disrupt operations such as core systems, order processing, production management, shipping, and accounting, resulting in recovery costs and expenses for external expert investigations, which could affect business results and financial position. In particular, the risk of important data being encrypted by ransomware or information being stolen and threatened with disclosure is increasing, and the Group is building multi-layered security measures such as network monitoring and detection of suspicious access, while also conducting employee training and site audits.