MITSUI E&S Co., Ltd.

The Company's business is centered on custom made-to-order production, and for projects requiring a long period from contract to delivery, discrepancies may arise between the estimated cost at the time of contract and the actual cost due to changes in social conditions and other factors. In addition, if claims arise due to product performance, quality, or delivery delays, or if environmental pollution occurs, there is a risk that costs such as damages will be incurred and the Company's social reputation will decline. As countermeasures, the Company implements careful cost estimation, securing diverse procurement sources, early collection of payments, and utilization of trade insurance.

In conducting business both domestically and internationally, changes in laws and regulations (abolition, amendment, or introduction of new regulations), political instability (war, terrorism), economic sanctions, delays in procurement of materials and equipment due to sudden changes in economic conditions, restrictions on fund transfers, and special taxes or tariffs may affect business performance and financial position. In addition, U.S. tariff policy and deteriorating conditions in the Middle East may affect supply chains and the global economy, which could have indirect effects on the Company Group. The Company strives to reduce risk through the use of trade insurance, gathering information from local legal and accounting consultants, and optimal allocation of responsibilities with customers and business partners.

In the event of disasters such as earthquakes and storm/flood damage, production activities may be affected by physical and human damage and paralysis of logistics functions. In the event of a pandemic such as COVID-19, economic disruption and voluntary restrictions on going out or travel bans may lead to a decrease in business negotiation opportunities and delays in customers' investment decisions, which could affect business results and financial position through delayed order intake. The Company strives to minimize losses through facility inspections and training, establishment of emergency contact systems, infectious disease response guidelines, formulation of BCPs, and utilization of casualty insurance.

In handling confidential information and personal information of business partners and the Company Group, if information leakage or loss, or loss of corporate assets occurs due to equipment failure, loss, theft, external attacks, or computer virus infection, this may affect business performance and financial position. Under the Chief Information Security Officer, the IT Control Office of the Corporate Planning Department leads the promotion of concrete measures such as formulation of security policies, monitoring of networks and IT equipment, multi-layered countermeasures against external attacks, and education and training.

Sales of domestic companies include a certain proportion of overseas transactions, and significant fluctuations in exchange rates may affect orders, sales, and profit/loss. As countermeasures, the Company adjusts the level of risk exposure to an appropriate level through the use of forward exchange contracts and by increasing the ratio of foreign-currency-denominated costs through overseas procurement. For overseas subsidiaries, since the majority of costs are denominated in local currency, the impact on profit/loss is considered minor.

The Company Group holds a certain level of interest-bearing debt, and if interest rates rise significantly, financing costs may increase. The Company strives to control interest rate increase risk through strict fund management and by maintaining interest-bearing debt at an appropriate level.

Changes in the market environment of customer companies in markets such as newbuilding ships may intensify price competition between the Company Group and competitors, potentially affecting profitability. In the core businesses of Marine Propulsion Systems and Logistics Systems, the Company is strengthening its competitiveness through the use of green technology (new fuel engines, zero-emission port cranes, etc.) and digital technology (advanced predictive maintenance, remote maintenance services, etc.).

If there is a sharp rise in the price of steel materials required for manufacturing marine engines, container cranes, industrial machinery, and other products, or a tightening of supply and demand, or a surge in crude oil prices and tightening of supply and demand for petrochemical products, profit/loss may deteriorate due to increased costs and process delays. The Company strives to mitigate the impact through securing a long-term stable supply system and price negotiations.

If the profitability of fixed assets held by the Company declines due to changes in the business environment, or if the recoverable amount declines due to a decrease in the fair value of idle assets, impairment losses may be recorded. Similarly, for held shares, impairment losses may occur due to declining profitability or a significant decline in fair value, and in tax effect accounting, changes in assumed figures or accounting standards may also affect business performance and financial position.

If a rapid institutional transition occurs, such as the introduction of a carbon tax or the strengthening of CO2 emission regulations, this may affect business profitability through taxation on fuel procurement costs and increases in manufacturing costs, among other factors. On the other hand, if the move toward decarbonization accelerates and demand for products using non-fossil fuels expands, the Company expects increased sales opportunities for environmentally friendly products in which it has strengths, recognizing both the risk and opportunity aspects.