NAGANO KEIKI CO.,LTD

If geopolitical risks materialize or a financial crisis on the scale of the Lehman Shock occurs, this could cause disruption to socioeconomic activity and financial/capital markets, potentially affecting the business activities and asset values of the Company's group. As countermeasures, the Company is working on concrete measures such as building alternative production and sales channels, while striving to avoid disruption to socioeconomic activity based on an assessment of the situation.

Rising energy prices, soaring logistics, materials, and raw material costs, delays or difficulties in procuring key components, and difficulty passing on rising material costs to sales prices may affect business performance. As this is also affected by changes in the domestic and overseas economic environment and the business environment of trading partners, the Company is promoting the establishment of a procurement system from multiple suppliers and the review and expansion of its supply chain.

Competition with overseas manufacturers is intensifying in the domestic market, and if the Company is unable to respond effectively on price due to increased manufacturing costs, it may lose market share, affecting business performance. As countermeasures, the Company is working on cost reduction through design changes and consolidation of models to standardize parts and structures, as well as product development and strengthening of product competitiveness to cover a wide range of measurement ranges and temperature ranges.

With overseas sales accounting for approximately 50% of the group's total, political instability, civil unrest, terrorism, war, or changes in economic policy in countries where the Company has operations, such as North America, Asia, and Europe, could affect its financial position and business results. The Company addresses this through monitoring trends using its overseas offices' information networks and promoting a local production and sales system.

Cyberattacks or information security incidents by malicious third parties could cause system outages, suspension of sales and production activities, and damage to the Company's reputation. Risks stemming from IoT-enabled factory and production line equipment are also anticipated, and the Company strives to prevent such incidents through the introduction of information security systems and the strengthening of cybersecurity governance.

Fluctuations in exchange rates on foreign-currency-denominated sales and purchases may affect the yen-converted value of assets and liabilities and result in foreign exchange losses, and the translation of overseas subsidiaries' foreign-currency-denominated financial statements into yen may also affect the consolidated financial statements. Overall, yen appreciation tends to reduce profits while yen depreciation tends to increase profits, and the Company works to hedge foreign exchange risk and reduce funding costs.

If the recruitment and development of personnel essential to passing on the Company's technical expertise in product development and manufacturing does not proceed smoothly, this could lead to failure in technology transfer due to an aging workforce, or reduced productivity and employee turnover due to declining employee engagement, affecting growth and business performance. The Company addresses this through planned year-round recruitment activities, enhanced training programs, improved treatment of employees, and the introduction of a fair and transparent personnel system.

Although the Company implements quality control based on ISO9001 and ISO13485, it is not possible to completely avoid defects in all products, and a large-scale recall or product liability claim could result in significant costs and reduced demand due to a decline in product reputation, affecting business performance and financial condition. The Company works to minimize losses through strengthened quality guidance to suppliers and group companies and immediate review of production processes when defects occur.

If an event that violates laws and regulations occurs, this could lead to a decline in social credibility and brand image and the payment of damages, affecting business performance and financial condition. In light of the misconduct by a former employee discovered in November 2021, the Company is promoting the establishment of a Group Charter of Corporate Behavior and strengthening compliance awareness among management and employees company-wide.

Large-scale natural disasters caused by global warming and abnormal weather, as well as tightening of GHG emission regulations, could have a significant impact on business results and financial condition, and there is also a risk of business suspension or loss of customers due to violations of environment-related laws and regulations. The Company is thoroughly implementing efforts to reduce GHG emissions and facility management based on ISO14001, while also developing a disclosure framework based on SSBJ standards that is consistent with the TCFD recommendations.