VALQUA,LTD.

The Group operates globally in a wide range of activities including the import and export of products and local production overseas, and is exposed to geopolitical risks such as deteriorating political and economic conditions, changes in laws and regulations, and social disruption caused by terrorism or conflict. If such events occur, including the impact of tariff policies such as those of the United States, business activities could be disrupted, potentially affecting business results and financial condition. As countermeasures, the Group works to diversify country risk and regularly monitors the political and social conditions of countries and regions requiring attention.

For some of the parts and raw materials procured domestically and internationally, securing alternative sources is difficult, and rising energy prices and supply constraints due to terrorism, conflict, or tariff policies, as well as increased procurement costs due to exchange rate fluctuations, could affect business results and financial condition. The Group is implementing multi-sourcing for procurement and securing timely and appropriate inventory levels, and is working to reduce procurement, manufacturing, and supply risks by expanding the scope of critical control items.

Unexpected product defects or accidents could damage the Group's brand image, potentially affecting business results and financial condition through decreased sales and deteriorating profitability. The Group manufactures products under strict quality control standards based on its basic philosophy of "Value & Quality," and has established a quality assurance framework centered on a cross-departmental quality assurance committee. The Group has also taken out product liability (PL) insurance to prepare for the possibility of substantial compensation costs.

As a result of its global operations, the Group is subject to laws and regulations in various countries, and tightening of regulations, changes in interpretation, or policy shifts could increase compliance costs or constrain business activities. In addition, misconduct involving the embezzlement of company funds by a former employee, announced on April 22, 2026, has come to light, and there is a risk that deficiencies in the internal control system could damage social credibility and brand image. The Group is steadily implementing measures to prevent recurrence and is addressing the issue from both the audit and execution sides, centered on the Compliance Committee.

Fluctuations in exchange rates affect sales, procurement costs, and the valuation of assets of overseas subsidiaries, and could affect business results and financial condition. The Group strives to control foreign exchange exposure by matching the currencies of foreign currency-denominated receivables and payables, and has a policy of utilizing hedging measures such as forward exchange contracts as necessary.

Under the new medium-term management plan (NF2026), the Group is actively pursuing M&A and business alliances to accelerate expansion into new materials, new markets, and new businesses, but changes in the external environment or misalignment of strategy could prevent results from being achieved as planned. In addition to careful evaluation through due diligence, the Group establishes a PMI framework after executing M&A to strengthen governance and regularly check for deviations from plans.

If the Group is unable to secure personnel responsible for executing the strategies of its medium-term management plan, highly specialized personnel, or leadership talent, or if talent attrition occurs, this could affect business results and growth plans. The Group has developed an environment that encourages challenge through diverse talent utilization, more active mid-career hiring, a skip-level promotion system, and next-generation development programs, and is working to improve retention rates by regularly conducting engagement surveys led by the CWO (concurrently held by the Representative Director).

If unauthorized access due to increasingly sophisticated and advanced cyberattacks, information leaks due to human error, or business interruption due to system failures occur, this could lead to a loss of trust and affect business results and financial condition. The Group is strengthening its security management framework across the entire Group and supply chain, centered on the Information Security Committee, and in FY2026 is implementing specific measures such as expanding supply chain risk assessments, taking out cyber insurance, and allocating security budgets for SaaS systems.

Abnormal weather caused by climate change could affect the supply chain, and tightening of environmental laws and regulations in various countries or unintended environmental pollution due to unexpected accidents or natural disasters could restrict business activities and require substantial countermeasure costs, potentially affecting business results and financial condition. The Group formulates business continuity plans (BCPs), conducts regular initial response drills, stockpiles necessary supplies, and operates a safety confirmation system, while also having transferred environmental management to the Sustainability Committee, with an Environmental Working Group responsible for monitoring regulatory trends and cross-departmental coordination.

Payments of compensation and condolence money related to health damage caused by asbestos may continue in the future, and given that the Group has also faced damage compensation lawsuits, this could affect business results and financial condition. The Group ceased the supply of all asbestos-containing products as of July 31, 2006, and has completed the transition to non-asbestos products, while continuing measures such as establishing a consultation desk, conducting health checkups for employees, and disclosing information on its website.