NANYO CORPORATION

The Construction Machinery Business and Crushed Stone Business are highly dependent on trends in public works and private construction investment, and a sharp decline in these could have a material impact on business results. The Industrial Equipment Business is affected by fluctuations in the semiconductor and electronic components market, and there is a risk that business results could deteriorate during downturns due to restraint in private capital investment and adjustments in production and inventory. Since multiple segments are exposed to different economic cycles, a simultaneous deterioration in the business environment could have widespread effects.

As the Group handles a wide variety of products ranging from machinery parts to semiconductor manufacturing equipment and construction machinery, continued increases in crude oil and raw material prices lead to higher procurement costs. If passing these cost increases on to sales prices becomes difficult due to intensified competition or other factors, profitability could be pressured. In addition, if the purchase price of assets leased out for rental in the Construction Machinery Business rises due to market fluctuations, increased fixed costs such as depreciation could affect the financial position.

The Industrial Equipment Business strives to maintain a stable supply and appropriate inventory levels; however, if order volumes fail to reach forecasts due to changes in economic conditions or if products undergo model changes, there is a risk of inventory valuation losses arising from declining profitability. Since inventory level management directly affects business results, the accuracy of demand forecasting is an important challenge.

In overseas operations centered on Asia, local currency-denominated items of consolidated overseas subsidiaries are translated into yen, so foreign exchange fluctuations affect the financial position and business results. A portion of import and export transactions are also conducted in foreign currencies, exposing the Group to foreign exchange risk. Although forward exchange contracts are utilized as a risk mitigation measure, complete hedging is difficult.

The Construction Machinery Business holds trade receivables with long collection periods arising from installment sales and similar arrangements, which entail credit risk. Although measures such as recording allowances for doubtful accounts and conducting credit checks and obtaining collateral are taken to preserve receivables, if part of the receivables becomes uncollectible or unexpected business partner failures continue due to deteriorating economic conditions or other factors, this could have a material impact on the financial position.

The occurrence of disasters such as earthquakes, typhoons, or infectious disease pandemics could cause damage to the Group's facilities and harm to officers and employees, potentially disrupting operations. If major suppliers or customers suffer significant damage, the resulting stagnation in their sales or production activities could also become a factor in deteriorating the Group's business results. This is a risk that tests the effectiveness of business continuity plans (BCPs).

The Group holds marketable securities for purposes such as strengthening relationships with business partners, and bears the risk of stock price fluctuations. If the stock prices of held securities decline significantly, this could have a material impact on the financial position and business results through the recording of valuation losses. As the reduction of policy-held shares becomes an industry-wide issue, there is pressure to review the Group's shareholding policy.

The Group utilizes computer systems throughout its business operations, and there is a risk that unauthorized access, computer virus intrusion leading to information leaks, or system outages caused by natural disasters or accidents could reduce operational efficiency and affect the financial position. Although crisis management measures such as establishing various security regulations and building backup systems are in place, complete protection is difficult given the increasing sophistication of cyberattacks.

The Group holds permits and registrations such as those for secondhand dealers, specified construction business operators, and quarrying business under the Quarrying Act in connection with the buying and selling of used machinery, machinery installation, and crushed stone production, and the revocation of these would directly affect business continuity. If major permits and licenses held by Nanyo Co., Ltd. and Kyoritsu Saisekisho Co., Ltd., such as specified construction business licenses, quarrying business registrations, and industrial waste disposal business licenses, were revoked due to legal violations or other reasons, this could have a material impact on the financial position and business results. The Group states that, at present, there are no facts corresponding to grounds for revocation.

The Construction Machinery Business operates primarily in the Kyushu and Okinawa region, and its structure is heavily influenced by the economic environment of that region. If market trends or regional conditions in Kyushu and Okinawa deteriorate sharply, there is a risk that the impact on business results could become concentrated due to limited geographic diversification. This is a compound risk factor, also linked to region-specific trends in public investment and natural disaster risk.