NEC Capital Solutions Limited

As the Leasing Business and Finance Business involve medium- to long-term collection periods, economic fluctuations or customer bankruptcies may increase bad debt losses or provisions for allowance for doubtful accounts, potentially affecting business performance. While risk is being mitigated through strict screening at the time of new transactions, periodic monitoring of business conditions, and portfolio management, unforeseen circumstances cannot be completely eliminated. Measures taken include maximizing receivables protection and collection through the sale of leased property and collateral assets.

Rating reviews or market disruptions may make fundraising difficult, potentially forcing procurement at significantly unfavorable interest rate levels. As of the end of the consolidated fiscal year under review, cash and deposits stood at ¥68,886 million, and the total unused amount of commitment lines and similar facilities with multiple financial institutions was ¥324,538 million. The Company strives for stable fundraising through diversification of funding sources, including corporate bonds and commercial paper, and by maintaining good relationships with major financial institutions.

Because the interest-bearing debt ratio is high due to funding requirements for the Leasing and Finance Businesses, a sharp rise in market interest rates could increase funding costs and affect business performance. The Company strives to reduce interest rate fluctuation risk by implementing comprehensive asset-liability management (ALM) of operating assets and liabilities.

Since residual values are set for the end of lease terms in the Operating Lease business, if property disposal prices fall below the residual value due to market changes or technological innovation exceeding expectations, losses may occur and affect business performance. The Company conducts periodic monitoring and risk quantity measurement, and seeks to reduce risk by diversifying the types of leased property and their expiration timing.

On October 2, 2024, the Company became an equity-method affiliate of SBI Shinsei Bank, with the aim of realizing synergies such as mutual complementarity with Showa Leasing, strengthening structured finance, and collaboration with regional financial institutions. However, if collaborative initiatives do not progress as expected or synergy effects do not materialize, this may affect the promotion of business strategy, the capture of profit opportunities, and business performance. The Company aims to realize synergies by promoting collaboration with group companies.

Due to a change in capital structure on October 2, 2024, the Company ceased to be an equity-method affiliate of NEC; however, NEC remains the second-largest shareholder, holding 11.81% of voting rights, and given the high proportion of NEC products and services handled, NEC's business performance may affect the Company group's business performance. The Company intends to continue promoting business collaboration as an important partner for financial services targeting the NEC Group.

If capital investment demand declines significantly due to sudden changes in the economic environment or deterioration in customers' business conditions, lease transaction volume may decrease and affect business performance. In addition, there are numerous competitors in the leasing industry, and continued rate competition poses a risk of reduced profitability. The Company intends to address competition by strengthening its profit structure by leveraging its distinctive characteristics based on its medium- to long-term management strategy.

If laws, tax systems, accounting standards, or other systems and standards are significantly changed in the future, this may result in the loss of merits of products and services or an increase in costs for regulatory compliance, potentially affecting business performance. The Company is working to improve profitability and reduce risk by deepening its existing customer base and developing new customers, while providing solutions to issues related to customers' management resources.

The Company holds a large amount of confidential information and personal information, and if an information leak occurs, this may affect business performance through penalties, damages, business suspension, or loss of credibility. In addition, a serious failure of information systems poses a risk of disruption to business operations and loss of trust. The Company implements human, physical, and technical measures including information security education, access control, relocation of systems to a dedicated building, backup lines, and strengthened prevention of unauthorized external access.

Violations of domestic and international laws and regulations, including the Companies Act, the Money Lending Business Act, the Financial Instruments and Exchange Act, the Building Lots and Buildings Transaction Business Act, the Act on the Protection of Personal Information, and the Antimonopoly Act, may affect business performance through penalties, damages, business suspension orders, revocation of registration qualifications, or loss of credibility. The Company has established the