NEPON Inc.

The Hot Air Heater for Horticultural Facilities in the Thermal Equipment Business relies on petroleum for most of its fuel, so crude oil price trends may affect agricultural producers' willingness to make capital investments. As a countermeasure, the Company is diversifying risk by promoting the production and sales of the electrically-powered Heat Pump for Horticultural Facilities.

Deregulation in the agricultural business has led to entry from other industries, which may intensify price competition in horticultural heating construction work within the Thermal Equipment Business and affect earnings. As a countermeasure, the Company is promoting Agrinet and other initiatives to build a structure that does not depend on specific business revenues.

A decline and aging of the domestic agricultural population, a shortage of successors leading to reduced new capital investment, and the collapse or withdrawal of horticultural facility greenhouses due to natural disasters such as typhoons, may affect the performance of the Hot Air Heater for Horticultural Facilities and other products. As a countermeasure, the Company is developing applications that transfer its heat and fluid control technology to other industries, aiming to acquire a new business foundation.

The expansion of sewage systems is shrinking the market for simplified flush toilets in the Sanitary Equipment Business, which may affect performance. As a countermeasure, the Company is promoting application development that transfers its heat and fluid control technology to other industries, aiming to diversify its business foundation.

In the horticultural facility industry, support programs for horticultural farmers using public funds from national and local governments account for a considerable proportion, and trends in the related budgets may directly affect performance. As a countermeasure, the Company is advancing application development that transfers its heat and fluid control technology to other industries, aiming to build a structure that does not depend on agricultural equipment sales.

Extreme heat or mild winters affect the operation of the Hot Air Heater for Horticultural Facilities, creating a risk of reduced revenue from maintenance services. As a countermeasure, the Company is transferring its heat and fluid control technology to other industries and developing products that can promote operation even during off-peak seasons.

As overseas transactions expand, foreign exchange fluctuations may affect performance. As a countermeasure, the Company states that it will consider introducing hedging measures such as forward exchange contracts if overseas transactions expand and the amounts become more significant.

Amid the global trend toward decarbonization, most of the Hot Air Heater for Horticultural Facilities in the Thermal Equipment Business emit CO2 from fossil fuel combustion, and demands for emission reductions from heater users and others are expected to intensify further going forward. As a countermeasure, in addition to promoting the production and sales of the Heat Pump for Horticultural Facilities, the Company is considering the development of new horticultural heaters that use alternative energy sources to fossil fuels.