ITOKI CORPORATION

In the previous consolidated fiscal year, the Company received administrative guidance (a recommendation) from the Japan Fair Trade Commission regarding a suspected violation of the Antitrust Act in connection with outsourced logistics operations. If violations of the Act or new investigations or dispositions by the authorities occur in the future, this may affect the Group's financial position through loss of credibility, incurrence of response costs, business restrictions, and other impacts. The Group is promoting company-wide initiatives to normalize business practices and is working to build appropriate relationships with its contracted business partners.

Although the Group manufactures products under strict in-house quality standards, unforeseen circumstances may give rise to product recalls or unexpected claims regarding products or services. While the Group has product liability insurance, there is no guarantee that it will fully cover the amount of any loss, which could adversely affect business performance and financial condition and undermine product reliability. The Group strives to prevent quality problems and minimize their impact through enhanced inspections and patrols, thorough quality education, and maintenance of a system for rapid response.

The Group holds personal information belonging to customers, business partners, and its own employees, and there is a possibility that such information could be leaked through cyberattacks employing technology beyond what is anticipated. Should an information leak occur, it could lead to a decline in brand value and the incurrence of substantial costs. The Group is working to ensure thorough protection of personal information through the operation of a management cycle that includes the development of internal regulations, various countermeasures, employee education, and internal audits.

The Group is highly dependent on communication networks, and network outages caused by natural disasters or unauthorized external intrusion or virus infection could affect business activities including order receipt/placement, production, and logistics. Should critical data be tampered with or erased, this could adversely affect business performance and financial condition. The Group has formulated an IT-specific business continuity plan (IT-BCP) and strives to minimize the impact of natural disasters and cyberattacks.

If a business partner suspends the supply of raw materials due to an accident, disaster, bankruptcy, or other event, the Group may be unable to supply products in a timely manner, which could adversely affect business performance and financial condition. While the Group takes measures to prepare for the risk of sudden supply disruptions through evaluation of suppliers and establishment of alternative suppliers, complete avoidance cannot be guaranteed. The Group aims to reduce risk by building countermeasures encompassing the supply chain and a disaster response framework from both a safety/health and business continuity perspective.

Since net sales are heavily dependent on the domestic market, a decline in demand resulting from reduced private-sector capital investment and public investment due to a domestic economic downturn could adversely affect business performance and financial condition. The Group faces intense competition in the market, and there is no guarantee that it will always be able to maintain a competitive advantage, particularly in terms of price. The Group is addressing this through the development of high-value-added products and services and optimization of its business portfolio.

The Group is exposed to the risk of price fluctuations in the market for steel sheets and other key raw materials, and if rising prices of steel and crude oil, among other factors, increase pressure from suppliers to raise prices, this could adversely affect business performance and financial condition. The Group responds through cost reduction activities in manufacturing and reduction of various expenses, and where such in-house efforts alone are insufficient to absorb the impact, it is the Group's policy to review selling prices. The Group also promotes initiatives in compliance with the Act on Promotion of Subcontracting Small and Medium-sized Enterprises and in line with the price negotiation guidelines of the Japan Fair Trade Commission.

In conducting overseas business, the Group is exposed to unexpected changes in laws and regulations, changes in the economic environment, social and political instability caused by war, terrorism, or conflict, and geopolitical risk. In addition, fluctuations in foreign exchange rates may affect business performance. The Group seeks to reduce risk by establishing region-specific management structures that enable close communication with local operations.

In corporate acquisitions, if changes in the business environment or other factors prevent the Group from realizing the initially anticipated benefits of an acquisition, impairment of goodwill or other effects may occur, affecting business performance. The Group thoroughly identifies risks through due diligence prior to acquisitions and alliances, while also building a framework for rapid response to changes in the business environment. The Group aims to maximize the benefits of acquisitions by promoting activities that contribute to improved operational efficiency.

If Group companies fail to appropriately promote proper handling of information and thorough emphasis on compliance, this could lead to a decline in brand value and adversely affect business performance and financial condition. The Group seeks to reduce risk by deploying technical measures, including strengthened IT governance and security countermeasures, as well as human and organizational measures such as education and training, across Group companies. While the Group continuously develops and promotes its management framework, this does not guarantee complete prevention of such risks.