Namura Shipbuilding Co.,Ltd.

Demand for New Shipbuilding is heavily influenced by the marine shipping market, and if the shipping market weakens due to a deteriorating global economy or heightened geopolitical risk, securing orders may become difficult. In the Ship Repair Business and the Steel Structures & Machinery Business as well, changes in domestic and international political and economic conditions affect the order environment. Amid expanding global uncertainty, inflation, and other concerns, business management continues to require a heightened sense of vigilance.

Since New Shipbuilding typically takes 2 to 3 years from order receipt to completion and delivery, economic conditions may change between the time of order receipt and the time of construction, potentially causing construction costs to exceed initial estimates. Provisions for construction losses may be recorded in cases of unavoidable loss-making orders taken to secure workload, or in cases of strategic orders, and since ship prices are set almost entirely in US dollars, the recorded amounts are also affected by exchange rate fluctuations. Because production is made to order according to each customer's specifications, there is also a risk that unforeseen design changes or process delays could further increase construction costs.

Since New Shipbuilding has a high export ratio and most orders are contracted in US dollars, net sales, cash receipts, and provisions for construction losses are directly affected by exchange rate fluctuations. While efforts are made to mitigate this impact through planned foreign exchange forward contracts based on policies set by the Board of Directors, a sharp appreciation of the yen could have a significant effect on business performance and financial condition.

With the IMO setting emission reduction targets for SOx, NOx, CO2, and other substances, compliance with environmental regulations in ship construction has become mandatory, and demand for new-fuel vessels to replace conventional fuel is rising. The Company is working jointly with customers on the development of environmentally friendly vessel designs, but if it fails to establish an efficient R&D and production system for regulatory compliance and new-fuel vessels, there is a risk that its competitiveness in terms of technological advantage in the New Shipbuilding Business could decline.

Steel prices, a major raw material, are a significant factor in fluctuations of manufacturing costs, and there are concerns that prices of materials and equipment other than steel may also rise due to global inflationary trends. If a supply shortage occurs due to geopolitical risk or disasters, this could lead not only to higher manufacturing costs but also to process delays caused by delayed delivery of procured items. The Company is addressing this by stationing materials personnel at the Osaka Head Office and Tokyo Office, deepening VA/VE activities, and reviewing domestic and international supply chains.

Human resources are an important management resource, and the Company strives for recruitment and development, including the utilization of women and foreign nationals, as well as the transfer of technical skills and know-how; however, depending on labor market conditions, it may not be able to secure and develop personnel as planned. If a labor shortage occurs, it could adversely affect the business performance and financial condition of the Group.

The Company holds confidential information from business partners and confidential information related to design, technology, and sales, and if such information is leaked or lost due to computer virus infection or unauthorized access, or if systems are shut down, this could adversely affect business performance and financial condition. Although efforts are made to protect information, risks stemming from increasingly sophisticated and diverse cyberattacks continue to exist.

If natural disasters such as large-scale earthquakes or storm and flood damage, or fires, cause direct damage such as destruction of production facilities or disruption of logistics functions, this could disrupt business activities and adversely affect business performance and financial condition. The impact on operations from the unexpected spread of infectious disease is also a risk that is anticipated, and while measures such as facility inspections, training, and establishment of communication systems are being implemented, complete elimination of such risks is difficult.

The Company strives to improve product quality by complying with laws and regulations related to quality and safety, but if a major defect occurs due to negligence or other causes, substantial expenses may arise from damage compensation and litigation costs. In addition, if a serious industrial accident or health hazard occurs at a business site or construction site, this could disrupt production activities and adversely affect business performance and financial condition.

The Company may record impairment losses on fixed assets it holds if the outlook for future cash flows declines due to changes in the business environment or other factors. Impairment losses may also be recorded on investment securities if their market value declines significantly or their substantial value deteriorates significantly, and for stocks judged to have diminished significance or rationale for continued holding, the Company works to reduce holdings as appropriate.