KYOKUTO KAIHATSU KOGYO CO.,LTD.

The Special-Purpose Vehicles Business is significantly affected by economic trends in the construction, logistics, and environment sectors, and there is a risk of last-minute demand surges and subsequent declines caused by revisions to laws and regulations such as the Road Traffic Act and the Road Transport Vehicle Act. In the Environment Business as well, changes in waste-related laws and regulations, public investment trends, and shifts in population and waste generation volumes affect business performance. The Group continuously monitors regulatory trends and strives to respond in a timely manner.

On September 25, 2025, the Company and its consolidated subsidiary Nihon Trex Co., Ltd. received a cease-and-desist order and a surcharge payment order from the Japan Fair Trade Commission based on the Antimonopoly Act. If a legal violation occurs, there is a risk of significant loss of social credibility and the imposition of sanctions such as surcharges, fines, or suspension from bidding. The Group as a whole is working to thoroughly enforce compliance and strengthen its internal control system to prevent recurrence.

In the Special-Purpose Vehicles Business, delays in chassis supply from truck manufacturers directly lead to production delays, and there are cases of dependence on specific suppliers due to the specialized and scarce nature of the products. If procurement is delayed or becomes impossible due to worsening international conditions, natural disasters, or other factors, significant disruption to production may occur, affecting business performance. The Group seeks to diversify risk by adopting a procurement policy that utilizes multiple competing suppliers.

If procurement prices for raw materials and parts, including steel, rise due to international conditions, exchange rate fluctuations, disasters, or other factors, there is a risk of adverse impact on business performance through higher manufacturing costs. Steel in particular is a key material for both the Special-Purpose Vehicles Business and environmental plants, and the impact of price fluctuations is far-reaching. The Group strives to manage costs by utilizing multiple suppliers, but it is difficult to completely eliminate this risk.

The Group exports products to various countries and conducts production, sales, and parts procurement through local subsidiaries, exposing it to unforeseeable risks such as economic fluctuations, exchange rate volatility, regulatory changes, terrorism, war, and political instability. If these risks materialize, deterioration in overseas business profitability or impairment of assets may affect the Group's overall business performance. The Group monitors and addresses overseas risks through its Risk Management and Compliance Committee.

If damage occurs to the information technology and networks that support business activities such as research and development, manufacturing, sales, and accounting, due to cyberattacks, unauthorized access, computer viruses, disasters, or other causes, there is a risk of business activity disruption or leakage of confidential information. If an information leak occurs, it may significantly impact business performance through loss of trust from business partners and customers, as well as compensation for damages. Although necessary security measures have been implemented, continuous response is required to address increasingly sophisticated threats.

Against the backdrop of the declining birthrate, aging population, and population decline, difficulties in recruitment and personnel attrition are becoming more serious, creating a risk that a shortage of personnel could affect business performance through declines in quality and service. Difficulty in securing skilled personnel unique to the manufacturing industry may hinder production capacity and quality control systems. The Group is working to enhance engagement through strengthened recruitment and talent development across the consolidated group, improvements to personnel systems, enhanced treatment and benefits, and the realization of diverse working styles.

If efforts toward decarbonization do not progress as planned, there is a risk that business performance could be affected by increased energy procurement costs and other factors. In addition, sudden weather changes such as typhoons, floods, and tornadoes, as well as long-term climate changes such as global warming, may affect business operations. The Group is systematically promoting decarbonization initiatives in its products, services, and manufacturing processes as part of its long-term and medium-term management plans.

If unexpected defects or flaws occur in products and services such as special-purpose vehicles and environmental plants, there is a risk of large-scale recalls and product liability claims, which could affect business performance through a decline in brand value and credibility and the recording of losses. Since special-purpose vehicles are vehicles that travel on public roads, defects can directly lead to personal injury accidents, resulting in a significant social impact. The Group seeks to reduce this risk by thoroughly implementing quality standards-based management on an ongoing basis.

As part of strengthening competitiveness for sustainable growth, the Group may enter into business and capital alliances or M&A transactions with other companies in Japan and overseas. However, there is a risk that business performance could be affected if the initially anticipated effects are not achieved due to changes in the market or business environment, or if the management or asset condition of an alliance or investee company deteriorates. If impairment of goodwill or investment securities occurs, there are also concerns about the impact on the Group's financial position. The Group has established a system for reporting important matters to the Board of Directors through its Risk Management and Compliance Committee.