LECIP HOLDINGS CORPORATION

Since the core Transportation Equipment Business relies mainly on bus and railway operators as customers, there is a risk that capital investment may be curtailed or postponed due to declining passenger numbers on public transportation or trends in government subsidies. In addition, performance may fluctuate significantly depending on the scale of AFC (Automatic Fare Collection Equipment) projects and the presence or absence of special demand associated with the issuance of new banknotes or changes in the consumption tax rate. The Group states that it makes maximum efforts to avoid and mitigate the occurrence of such risks.

In the domestic bus and railway industry, there is a tendency for equipment replacement and timetable revisions to be concentrated in the fourth quarter (January to March) each year, creating a structure prone to seasonal skew in business performance. If the delivery of projects planned for the fourth quarter is delayed into the following fiscal period, there is a risk that performance for that period may fluctuate significantly. This risk is highly likely to materialize in the short term and is assessed as having a large impact.

The Group has established local subsidiaries in the United States, Singapore, Thailand, and Sweden, and conducts business in North America, Southeast Asia, and Europe. Under the new medium-term management plan "Reach our Target 2026," expanding overseas sales is positioned as a core strategy. If unexpected legal or regulatory changes in various countries, social disruption caused by terrorism, war, or infectious disease, or sharp changes in exchange rates were to materialize, this could affect business performance and financial condition.

Deferred tax assets are recorded based on reasonable estimates of future taxable income and an assessment of recoverability; however, changes in estimated taxable income due to shifts in the business environment, or changes in tax rates resulting from tax reform, may lead to a reversal of these assets. Such a reversal, if it occurs, is recognized as a risk that could have a significant impact on business performance and financial condition.

Although the Group has formulated business continuity plans in preparation for natural disasters such as earthquakes, typhoons, and floods, there is a risk that a large-scale disaster exceeding expectations could cause unforeseen events such as interruption of business activities, damage to production facilities, or suspension of product transport. In addition, disasters occurring at material suppliers or outsourcing partners could also lead to delays in production activities, affecting business performance and financial condition.

Amid accelerating technological innovation in related industries such as MaaS, cashless payments, autonomous driving, and 5G, delays in developing new products and services, or failure to develop offerings that meet market needs, may affect business performance and growth strategy. The Group strives to quickly identify changes in market needs and technological innovation and to develop new products and introduce new services, but recognizes this as a medium- to long-term risk.

If materials cannot be secured in a timely manner due to disasters, accidents, or quality issues affecting suppliers, or due to tight market supply-demand conditions, this may cause delays in production activities and increases in the product cost ratio, thereby affecting business performance. The Group seeks to ensure stable procurement by sourcing from multiple suppliers, but the risk of supply shortages or sharp increases in material prices cannot be completely eliminated.

The Group handles products requiring a high degree of reliability and safety, such as fare collection systems for public transportation infrastructure and industrial power supply equipment. If a large-scale product defect were to occur, it could result in substantial repair and compensation costs and loss of credibility, potentially having a material impact on business performance and operations. The Group strives to prevent defects through the establishment of quality control systems, but the risk cannot be completely eliminated.

When indications are recognized that investment recovery for a given business may become impossible, the Group assesses whether impairment is necessary based on estimates of future cash flows, among other factors, and impairment losses may need to be recorded. If an impairment loss occurs, it will affect the Group's business performance and financial condition.

While the Group strives to establish rules for handling personal information and to strengthen the security of its information systems, if an information leak were to occur, the resulting decline in social trust could affect business performance. In addition, if information systems or communication networks were to become dysfunctional due to cyberattacks such as computer viruses or unauthorized access, or due to system failures, this could affect the Group's business, performance, and financial condition.