Kyokuto Boeki Kaisha, Ltd.

Import/export transactions and cross-border transactions, which account for approximately 50% of net sales, are affected by demand fluctuations arising from increased trade barriers due to U.S. tariff policy, global monetary tightening, surging raw material and energy prices, exchange rate fluctuations, and geopolitical risks. If these factors act in combination, they could adversely affect the Group's business results and financial position. In particular, U.S. tariff policy is also expected to impose direct restrictions on certain handled products.

Foreign currency-denominated settlements in import/export and cross-border transactions expose the Group to foreign exchange rate fluctuation risk. Although hedging is conducted through forward exchange contracts, there is no guarantee that all such risks can be avoided, and the yen-equivalent amounts of foreign currency-denominated sales, purchases, expenses, and assets arising from transactions with overseas companies are also affected by exchange rate movements.

Competition is intensifying due to improvements in the technological capabilities of emerging-market companies and the distribution of low-priced products, with an ongoing increase in new market entrants in addition to existing competitors. While the Group intends to respond by enhancing its technological capabilities and providing added value as an engineering trading company, if it is unable to offer products and technology at competitive prices, this could adversely affect its business results and business development.

Overseas transactions, investments, and capital and business alliances are exposed to risks arising from changes in laws and regulations in various countries, political instability, unfavorable tax systems, and social disruption caused by terrorism or war. Changes in the political, legal, and tax environment, difficulty in securing labor, or unexpected changes in economic conditions may give rise to problems in collecting payments or conducting business.

The Group is subject to a variety of laws and regulations both in Japan and overseas (import/export regulations, national security-related export restrictions, tariffs, etc.), and compliance costs are expected to increase. Failure to comply with laws and regulations could result in penalties, fines, restrictions on business activities, and loss of credibility, potentially adversely affecting business results and financial position.

The Group has entered a variety of business fields through joint ventures and investments with third parties, but the progress of such businesses may depend on factors beyond the Group's control, such as the business results and financial condition of its partners. Should unforeseeable circumstances arise, the Group may incur significant losses, potentially adversely affecting its business results and financial position.

As business expands both domestically and internationally, dependence on information systems and networks is increasing, and the Group has implemented measures such as officer and employee training and the establishment of related regulations. However, unforeseeable system failures or malicious cyberattacks from outside could cause information system outages, leakage of personal or confidential information, business interruption, or loss of credibility, potentially affecting business results and financial condition.

Delivery of large machinery and equipment projects, as well as projects for government agencies, tends to be concentrated in March, and if there are changes in the timing of customer acceptance or projects slip into the following fiscal period, this could adversely affect results for the current period. Since the timing of revenue recognition varies depending on factors such as the customer's acceptance schedule, actual results may differ from initial plans.

Securing highly specialized personnel is essential to business activities in the areas of engineering and the discovery of advanced technologies. If the Group is unable to secure and develop excellent personnel, this could adversely affect its business results and financial position.

Employee retirement benefit expenses and obligations are calculated based on actuarial assumptions such as the discount rate and the long-term expected rate of return on pension assets. If actual results diverge from these assumptions or the assumptions are changed, future expenses and obligations could be affected. In particular, a decline in the discount rate or deterioration in investment returns could adversely affect business results and financial position.