TOKYO SEIMITSU CO.,LTD.

The Group, which operates globally in Semiconductor Production Equipment and Measuring Instruments, may be affected in its business performance by fluctuations in the balance of supply and demand in each business and by deterioration of the economic environment in each region. Given the structure in which overseas sales account for more than half of total sales, an economic downturn or market contraction in a specific region is likely to directly affect earnings. A framework for identifying and managing potential risks has been established through the Risk Management Committee.

Overseas sales are, in principle, denominated in Japanese yen; however, settlements with some customers are denominated in foreign currencies such as US dollars or euros, and unexpected fluctuations in exchange rates may affect business performance. In addition, since the financial statements of overseas consolidated subsidiaries are prepared in the currency of the country in which they are located, translation risk also exists when preparing the consolidated financial statements. The Group seeks to mitigate this risk through foreign exchange hedging and other measures, but complete avoidance is difficult.

Some of the products the Group sells overseas require export permits under Japan's Export Trade Control Order, and business performance may be affected if the products subject to such requirements change or related laws and regulations are amended. The same risk applies if trade disputes between Japan and third countries, or among third countries, make import and export difficult. Given the business structure in which overseas sales account for more than half of total sales, tightening of trade regulations could directly harm earnings.

Technological evolution is remarkable in the Group's business fields, and the development and commercialization of advanced technologies are essential to maintaining and strengthening competitiveness; however, business performance may be affected if these efforts do not lead to success. The pace of technological innovation in the Semiconductor Production Equipment and Measuring Instruments markets is rapid, and there is always a risk that development investment will not translate into results. The Group seeks to maintain its competitiveness through continuous investment in research and development and the promotion of commercialization.

Because of their special nature, some key components have limited procurement sources or are difficult to switch suppliers for, and if a supply shortage or delivery delay occurs, production activities may be disrupted, potentially affecting business performance. The Group has established a procurement system that, wherever possible, sources from multiple suppliers to ensure stable procurement, but for certain specialized components, alternative procurement remains difficult. The Group also strives to secure stable inventories of materials and components, but there is a risk of inventory shortages in the event of an unexpected surge in demand.

If direct or indirect damage arises from unforeseen product quality defects, business performance may be materially affected through loss of social credibility, the burden of compensation liability, the incurrence of countermeasure costs, and a decline in earnings. The Group continuously strives to improve the quality and reliability of its products and services, but the potential quality risk cannot be eliminated given the complexity of products incorporating cutting-edge technology. If a quality problem affects a customer's semiconductor manufacturing line, the amount of damages could become substantial.

The Group holds confidential information belonging to customers as well as its own technical and business information, and if such information is leaked externally or tampered with due to negligence, theft, or cyberattacks from outside parties, business performance may be affected through loss of credibility and the burden of compensation. The Group has established information security regulations based on its "Basic Policy on Information Security" and implements various countermeasures, education, and training, but complete defense is difficult given the increasing sophistication of cyberattacks. In particular, the leakage of cutting-edge technical information poses a risk of a direct blow to competitiveness.

If manufacturing facilities and other assets suffer unexpected damage due to a sudden event, business performance may be affected by the disruption of production activities. The Group is advancing regular disaster-prevention inspections of manufacturing facilities, equipment maintenance, investment to improve safety, and the establishment of an alternative production system within the Group based on its business continuity plan; however, if a widespread event such as a natural disaster, disease outbreak, terrorism, or war occurs, there is a risk that the entire process—from sales and procurement to production, transportation, and delivery—could be disrupted.

The Group, which offers numerous products incorporating cutting-edge technology, may be affected in its business performance if litigation with third parties over the ownership of patent rights or the protection of trademarks and brands arises in Japan or overseas. The Group takes measures to protect its interests regarding the ownership of patent rights and the protection of trademarks and brands, but the risk of intellectual property disputes in various countries always exists as a result of its global operations. If litigation becomes prolonged, response costs and constraints on business activities may arise.

The Group is subject to environmental regulations both in Japan and overseas, including those concerning water pollution prevention, air pollution prevention, waste regulations, and management of chemical substances contained in products, and business performance may be affected by constraints on production activities and the cost of compliance if such regulations are tightened. The Group is undertaking various measures to reduce environmental impact in the development and manufacturing processes of its products, but the same risk arises if the expected results are not achieved. Given the international trend toward stricter measures against global warming and stricter energy regulations, rising response costs could become an ongoing challenge.