NIPPON SEIKI CO.,LTD.

If demand contracts significantly due to worsening economic trends, changes in tariff policy, or heightened geopolitical risk, it could adversely affect the business, results of operations, and financial condition of the Group, which operates globally. Because manufacturing and sales activities are conducted across the Americas, Europe, Asia, and other regions worldwide, there is a risk that economic disruption in a specific region could spread to overall performance. As countermeasures, the Group is monitoring global economic conditions, transferring production to other regional bases, promoting local production for local consumption, and strengthening the supply chain.

The proportion of overseas revenue has been increasing year by year, and exchange rate fluctuations may affect revenue denominated in foreign currencies and the yen-converted amounts of the financial statements of overseas consolidated subsidiaries, potentially adversely affecting the financial position and results of operations. As global business expansion continues, the impact of exchange rate fluctuations is becoming greater. The Group monitors fluctuations in major currencies and their impact on business, and implements hedging measures such as forward exchange contracts in a timely manner as necessary.

In the automotive industry, the electrification of four-wheel and two-wheel vehicles, the advancement of ADAS and autonomous driving, and the shift to SDVs (Software Defined Vehicles) are rapidly shifting the source of vehicle value from hardware to software and data utilization. If the Group fails to respond in a timely manner to unexpected changes in market needs or technological innovation and is unable to provide competitively advantageous products in a timely manner, this could adversely affect the business, results of operations, and financial condition. As countermeasures, the Group is strengthening its software development capabilities and advanced core technology development capabilities, deepening collaboration with customers and suppliers, and promoting product and technology development in anticipation of the shift to SDVs.

The rise of emerging manufacturers and component suppliers, particularly from China, is accelerating the market introduction of products with superior cost competitiveness and development speed, significantly changing the traditional competitive landscape. With the shift to SDVs, the source of competitive advantage is shifting toward software, data, and system integration capabilities, and entry from companies in other industries is also increasing. If the Group is unable to maintain cost competitiveness and development speed, or fails to secure and develop software-related talent as planned, this could adversely affect the business, results of operations, and financial condition. The Group is addressing this through optimization of its global development and production systems and collaboration with external partners.

In FY2026 (ending March 2026), sales to the Honda Motor Co., Ltd. group accounted for 10% or more of consolidated revenue, meaning that changes in that group's production and sales trends, business environment, and business strategy could directly affect the Group's results of operations. Because of the high degree of dependence on a major customer, there is a risk that a change in that company's policy or deterioration in its performance could spread to the Group's performance. As countermeasures, the Group is working to maintain and expand business with major business partners while promoting sales activities aimed at acquiring new customers.

Some raw materials and components, such as semiconductors, memory, and rare earths, have limited sources of supply, and if procurement becomes difficult due to insufficient production capacity, quality defects, or bankruptcy of suppliers, natural disasters, or global supply shortages and price increases, this could adversely affect the business, results of operations, and financial condition. For some highly specialized components, switching suppliers is difficult. The Group is working to build a stable procurement system by considering alternative products, diversifying suppliers, and promoting global procurement.

Much of the Group's business activities, including research and development, production, and sales, depend on IT systems, and the Group holds important confidential information such as technical information and personal information. If an information leak occurs due to a cyberattack, disaster, or system defect, this could result in a loss of social trust and substantial damages, adversely affecting the business, results of operations, and financial condition. The Group is taking measures such as developing internal regulations, thoroughly educating employees, and strengthening security systems.

If facilities are damaged by large-scale earthquakes, floods, typhoons, or other natural disasters or fires, and the supply of electricity, gas, or water becomes difficult, this could result in delays in production and shipment and substantial costs for facility repair, adversely affecting the business, results of operations, and financial condition. The Group has established a "Disaster Prevention Subcommittee" and a "BCP Subcommittee" under the Risk Management Committee, building continuous activities and a crisis management system to minimize damage and losses.

Due to the declining working-age population in Japan resulting from the falling birthrate and aging population, as well as increasing demand for talent and more advanced required skills accompanying global business expansion, it may become difficult to systematically secure, develop, and retain diverse and capable talent. In particular, a shortage of specialized personnel such as software development talent poses a risk of making it difficult to execute the strategy and achieve the goals of the medium- to long-term management plan. The Group is addressing this by respecting diversity and actively implementing various talent development programs.

The increasing frequency and severity of natural disasters caused by abnormal weather pose a risk of disrupting business activities across the entire value chain, from design and development to procurement, production, logistics, and sales. In addition, if capital expenditures become necessary to comply with strengthened laws and regulations, this could adversely affect the business, results of operations, and financial condition. The Group is promoting initiatives toward achieving carbon neutrality, such as introducing green energy including the installation of solar panels at domestic and overseas sites, and developing recycling technologies for resin materials.