NARASAKI SANGYO CO., LTD.

If deterioration in the domestic and overseas economic environment leads to a decline in capital expenditure or production by manufacturers, or if there is a decrease in public works or a sharp contraction in the construction market, demand for the products and services provided by the Group may decrease. Because the Group's business areas are extensive and diverse, a downturn in a specific sector could have a compound effect on business performance and financial condition.

As the Group handles many production materials, a surge in crude oil and raw material prices resulting from changes in the supply-demand environment directly leads to higher procurement prices and transportation costs. If cost increases cannot be passed on to selling prices or transportation revenues due to intensified competition or other factors, profitability may deteriorate and affect business performance.

If unforeseen incidents arise due to defects, malfunctions, or construction deficiencies in the products, services, or contracted works provided by the Group, this will result in cost burdens and a decline in trust in the products and services. As a result, business performance and financial condition may be adversely affected, and complete elimination of such risks is difficult despite thorough quality control efforts.

The Group is pursuing a strategy centered on "selection and concentration" based on business portfolio analysis and growth drivers, but if unexpected changes in the business environment occur or a significant divergence from the initial business plan arises, this may affect business performance and financial condition. Although the Group continuously verifies the appropriateness of its business strategies and measures, there are limits to its ability to respond to sudden changes in the external environment.

If it becomes difficult to secure excellent talent, or if personnel with advanced specialized skills, knowledge, and experience leave the company, it will become difficult to pass on technology and know-how, hindering business operations. Furthermore, if work-style reforms do not progress, this could lower employee motivation, sense of belonging, and productivity, potentially affecting business performance. Although the Group is working to improve its recruitment structure, training system, and workplace environment, securing talent remains an ongoing challenge amid intensifying competition in the labor market.

Regarding securities held for the purpose of strengthening relationships with business partners, a decline in stock prices could result in the recording of valuation losses and an increase in retirement benefit expenses. While the Group has hedged against interest rate risk on borrowings from financial institutions by fixing interest rates, an increase in financial expenses due to rising interest rates cannot be avoided; and although foreign currency-denominated transactions in overseas operations are hedged through forward exchange contracts and other means, exchange rate fluctuation risk cannot be completely avoided.

The Group is subject to a wide range of laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, tax laws, trade-related laws including the Foreign Exchange and Foreign Trade Act, the Antimonopoly Act, and intellectual property laws, and the introduction of new regulations or changes in laws may result in restrictions on business activities or additional compliance costs. If the internal control system fails to function effectively and a violation of laws and regulations occurs, this could lead to a decline in social reputation and have a material impact on business performance and financial condition.

The Group holds a large amount of confidential information in the course of conducting its business and builds and operates information systems accordingly; however, if unexpected computer viruses or unauthorized access disrupt the functioning of information systems or cause confidential information to leak externally, this will result in damages compensation and system recovery costs and a decline in social credibility. Although the Group continuously implements measures to ensure system safety, security countermeasures, and employee training, complete defense is difficult given the increasing sophistication of cyber threats.

Although the Group conducts credit management for its diverse range of customers, including regular monitoring of business conditions, setting credit limits, obtaining collateral and guarantees, and recording allowances for doubtful accounts, depending on future economic trends, a situation may arise requiring an increase in the allowance for doubtful accounts. Although a credit management system is in place, the risk that deterioration in the business environment of business partners will affect performance cannot be eliminated.

The Group has established a Business Continuity Plan (BCP) in preparation for natural disasters such as earthquakes, tsunamis, and typhoons, as well as explosive outbreaks of infectious diseases; however, if damage occurs to the business activities of the Group or its business partners, or if social infrastructure functions decline, this may affect business performance and financial condition. Although the BCP aims to minimize damage and achieve early recovery, it is difficult to completely avoid the impact of a large-scale disaster.