Nihon Seimitsu Co., Ltd.

As of the end of the current consolidated fiscal year, the interest-bearing debt dependency ratio was 44.8% (total interest-bearing debt of ¥2,696,951 thousand), and the syndicated loan agreement concluded in February 2025 contains financial covenants. There is a risk that if the financial covenants are breached due to deterioration in business performance or other factors, the company could lose the benefit of the term. The company is working to stabilize its financial base through the introduction of a cash management system and the execution of a ¥200,000 thousand early repayment of a term loan using proceeds from a third-party allotment of new shares in March 2026.

The Group has production bases in Vietnam, Cambodia, and China, and a sales base in China (Hong Kong), and foreign currency-denominated transactions occur on a regular basis. While the Group mitigates risk through forward foreign exchange contracts and is preparing a debt-equity swap for foreign currency-denominated receivables from NISSEY CAMBODIA CO.,LTD., fluctuations in foreign exchange rates may affect business performance. Although foreign currency-denominated financial liabilities are primarily repaid in foreign currency, exchange rate fluctuation risk cannot be completely eliminated.

As of the end of the current consolidated fiscal year, watch-related sales accounted for 74.4% of total sales, representing a high degree of dependence on a specific field. Changes in the strategies, product specifications, order cancellations, or schedule changes of major customers could have a material impact on business performance. The company is working to reduce this dependence by expanding new business partners and through regular exchanges of information with major customers, but the structural risk remains.

There is a risk that bad debts may arise due to poor business performance or bankruptcy of business partners, which the company addresses through regular monitoring of credit conditions based on its credit management regulations. In addition, rising labor costs due to labor shortages and increases in subcontracting costs due to rising raw material prices may put pressure on profitability. Although the company conducts regular price negotiations, if it is unable to pass on the full amount of cost increases, business performance may be affected.

There is a risk that rising labor costs and labor shortages at production bases in Vietnam and Cambodia could lead to a decline in utilization rates. Although the company strives to maintain stable employment through productivity improvements, base pay increases, and bonus payments, changes in the local labor market environment may affect business performance. Given the high degree of dependence on overseas production bases, a decline in utilization rates poses a risk directly linked to product supply capacity.

Technological development capability is at the core of the company's competitiveness, and securing highly specialized engineers both domestically and internationally is essential. Although the company is working on work-style reform, promoting diversity, employing foreign nationals, and improving treatment, if the securing and development of human resources does not proceed as planned, business performance may be affected. There is a risk that the loss of outstanding talent or difficulty in recruitment could lead to a decline in technological development capability.

If the substantial value of held assets declines, impairment processing may be required, which could affect business performance. Although the company works to reduce impairment risk by improving asset profitability, there is a risk that unexpected impairment may occur due to deterioration in the business environment or a decline in market value. The recognition of impairment losses may have a significant temporary impact on the financial statements.

Deferred tax assets are recorded based on projections of future taxable income, but if future taxable income falls short of projections, a review of recoverability may require a write-down of deferred tax assets. If a write-down occurs, it may affect business performance through an increase in corporate income taxes. Although recoverability is carefully assessed when recording deferred tax assets, this is a risk linked to fluctuations in business performance.

A wide range of operations, including development, production, sales, and management, are managed through computer systems, and if a system failure occurs, it could disrupt overall business operations. Although the company prepares for computer virus infections and cyber attacks through cloud migration and regular backups, risks from increasingly sophisticated cyber threats remain. System troubles may affect not only business performance but also customer trust.

The Group has production and sales bases in Japan, China, Vietnam, and Cambodia, and unforeseen events such as political instability, natural disasters, war, terrorism, the spread of infectious diseases, and changes in laws or tax systems may affect business strategy and performance. Although the company strives to gather information through a regular risk management committee and video conferences with each base, it is difficult to completely avoid these risks. In particular, the concentration of production at Southeast Asian bases increases exposure to geopolitical risk.