NIFCO INC.

Diversification of employment forms and intensifying labor mobility may lead to shortages and outflow of personnel with high expertise and knowledge, resulting in development delays, quality deterioration, and reduced customer satisfaction. There are also concerns about the difficulty of responding to new businesses due to young people's aversion to manufacturing and the aging of skilled workers. As a countermeasure, the company is formulating and implementing an action plan based on a human resource strategy centered on talent development, diversity, and employee engagement.

Delays in responding to the latest IT technologies such as AI and IoT may reduce sales capability and competitiveness, and lead to a high-cost structure due to declining business improvement capability. This is due in part to a lack of effective system development and skills in utilizing the latest tools. As countermeasures, the company is rebuilding its domestic security system, training 26 digital personnel, and internalizing outsourced work through the construction of a data lake.

System malfunctions, including those caused by external cyberattacks, could result in business suspension or supply disruption, damaging stakeholder trust. As countermeasures, the company is rebuilding its domestic security system, building backups of its core systems on the cloud (cloud migration of peripheral systems was also completed in December 2024), and conducting annual incident response drills and targeted email attack drills.

Delays or inability to procure materials due to climate change, disasters, unstable political conditions, equipment failures, or quality issues could cause customers' production activities to halt. There is also a risk of reduced profits due to rising raw material prices, and a risk of legal violations due to the inclusion of environmentally hazardous substances. As countermeasures, the company is diversifying its suppliers, selecting and evaluating alternative material candidates, negotiating price pass-through with customers, and horizontally deploying IT systems for managing environmentally hazardous substances to major overseas sites.

Expansion of product areas through the adoption of new technologies, new processes, and new materials may increase quality costs and reduce profits. Insufficient mass-production preparation and inadequate hazard prediction could result in the shipment of defective products, leading to reduced customer satisfaction and loss of credibility. As countermeasures, the company practices continuous quality cost monitoring and improvement activities after mass production begins, and milestone management activities compliant with IATF16949 to resolve preparation shortfalls and improve quality.

An increase in competitors due to entry into the automotive market by companies from other industries, and delayed response to changes in the market environment, could lead to lower order prices and an increase in lost orders. There is a concern that adherence to conventional business styles could result in failure to differentiate from other companies. As countermeasures, the company is clarifying the direction of its technology strategy, securing specialized personnel, and strengthening price competitiveness through consolidated production.

As the proportion of overseas sales increases, fluctuations in exchange rates used to convert the local-currency financial statements of overseas subsidiaries into yen could affect the consolidated financial position. There is also a risk that manufacturing costs could rise due to the impact of exchange rates on raw material prices, electricity costs, and fuel costs. As countermeasures, the company is minimizing the impact through a network of locations not concentrated in specific regions or countries, and is implementing substitution with alternative materials and negotiating price pass-through with customers.

Sudden changes in policy, laws, or tax systems, political and economic instability, or social disruption such as terrorism, war, conflict, or the spread of infectious diseases in countries or regions where overseas sites are located could make it difficult to conduct business, worsening business results and financial condition. Supply chain disruption may also occur. As countermeasures, the company is promoting a network of locations not concentrated in specific regions or countries, global management of production information, and the establishment of alternative production and delivery systems.

The occurrence of natural disasters such as earthquakes could make business continuity difficult, significantly affecting business results and financial condition. Supply chain disruption is also a concern. As countermeasures, the company is working on BCP activities, including seismic reinforcement of facilities, introduction and training of a safety confirmation system for all employees, and selection of alternative raw materials and alternative product production.