Corporate Information Business and Other Risks

Described below are the main factors identified as posing material risks for the financial state, business performance, and cash flow of the OKI Group (i.e., the Company and its consolidated subsidiaries).

These risks were determined by the OKI Group as of March 31,2023.

Note that this list is not intended to be exhaustive. The OKI Group recognizes these and other risks and will strive to minimize their impact.

• *Figures included in the text below are for the fiscal year ended March 31, 2023.

1. Risks related to global political and economic trends

Demand for the OKI Group's products is affected by political and economic conditions in the various regions where the OKI Group sells its products, both inside and outside Japan.

The OKI Group's overseas markets include the Americas, Europe and Asia, and sales in these regions were 61 billion yen (16.5% of consolidated sales) during the fiscal year under review. Should energy shortages, price increases, or supply chain disruptions occur in these overseas markets and other regions, demand for OKI Group products may contract, or manufacturing delays may occur in hardware products due to shortages in the supply of semiconductors and other components, which may affect the OKI Group's business performance and financial status.

In addition, the OKI Group's business performance and financial status may be affected by economic downturns caused by sharp monetary tightening in various countries, resulting in reduced demand, and changes in laws and regulations in various regions, including import restrictions on products.

With regard to overseas sales in each business, in addition to periodically monitoring the status of sales and other aspects, the Group recognizes the need to strive to identify as quickly as possible the consequences of any political or economic changes in specific overseas markets and to respond appropriately. This involves various measures, including measures to ensure sales are not excessively concentrated in specific regions. In addition, we are working to reduce the impact of supply chain disruptions by increasing the number of suppliers and adapting to replacement parts through design changes.

2. Risks related to country risk

The OKI Group has 29 subsidiaries in overseas and operates numerous sales and production facilities. The main production and manufacturing facilities are located in Thailand and Vietnam; major sales facilities are located in the Europe, the United States, China, and India etc.

In these countries and regions, there is a possibility of social disorder, production, and distribution stagnation caused by the spread of infectious diseases, pollution-related diseases, and other diseases. As a result, there is a possibility that the business itself will be adversely affected due to obstacles in the procurement of raw materials and parts and delays in production.

Furthermore, the Group recognizes that these countries pose the risk of coup d'état, dispute, revolution, or social disorder caused by revolt, terrorism, or natural disasters, leading to the seizure or expropriation of OKI Group's assets or harm to its personnel or property.

In the event of an increase in such risk or a specific crisis event, the Group believes it is necessary to secure alternative means, such as securing alternative raw material parts and distribution routes, transferring the functions of related bases, and securing complementary personnel in the event of a shortage of human resources due to such effects.

The Group also recognizes that it is necessary to accurately analyze the events that have occurred, and if it determines that appropriate business operations, including profitability, cannot be continued, it will be necessary to consider measures including withdrawal.

3. Risks related to exchange rates

The OKI Group is engaged in overseas business development and the production of key products, and is exposed to currency exchange risks that may be affected by political and economic conditions in Japan and abroad. As a result, the OKI Group's financial state, business performance, and cash flow may be affected. In response, the Group implements risk hedging through measures including forward foreign exchange contracts and offsets that address imbalances in positions held of foreign currency assets and liabilities. The Group also refrains from speculative trading. Through these measures, the OKI Group strives to minimize the impact of foreign exchange.

4. Risks related to fluctuations in financial markets and interest rates

The OKI Group's interest-bearing debts are subject to fluctuations in financial markets and interest rates. Its total balance of long-term and short-term debts stood at 118.0 billion yen. Its debt/equity ratio was 1.2. Interest paid during this consolidated fiscal year was 1.9 billion yen. Developments such as rising interest rates on funds borrowed or restriction on methods of raising funds in response to fluctuations in financial markets or in the OKI Group's credit rating may impact the OKI Group's financial state, business performance, and cash flow.

With regard to debts, alongside measures like interest rate swap transactions, the Group strives to maintain sound debt levels. The impact of rising interest rates on the OKI Group appears extremely limited.

In the event of a stock market downturn or asset management environment deterioration, the value of the listed stocks and pension assets held by the OKI Group may decline, and the business performance and financial position of the OKI Group may be affected by the recording of valuation losses and a decrease in net assets.

As for cross-shareholdings, the OKI Group strives to reduce the number of shares each year by taking both quantitative and qualitative factors into consideration for each stock.

Pension assets are invested in corporate pension funds. Investment targets and etc. are drafted by the Investment Management Committee and the decided at the Board of Trustees. Members of both committees include employee representatives as well as people with expertise in the finance and human resources departments, appointed by the Company.

5. Risks related to laws and regulations

In the various regions in which it does business, both inside and outside Japan, the OKI Group is naturally subject to various laws and regulations, including business and investment permits, national security, environment-related laws and regulations, information protection regulations, foreign trade and foreign exchange laws and regulations, competition laws and regulations, and import and export regulations implemented for purposes related to economic sanctions and etc., and tax systems.

In Japan, it is also subject to laws and regulations, including laws and technical standards for products and services, the Subcontract Act, the Construction Business Act, and the Industrial Safety and Health Act, as well as the Basic Act on Cybersecurity, etc. in connection with the Internet and other advanced information and telecommunications networks.

Failure to comply with these laws and regulations (including similar and similar laws and regulations) in Japan and overseas could result in additional costs and impede our business activities. In addition, we could lose the trust of our customers and society, resulting in an impact on the OKI Group's business performance and financial status.

The OKI Group promotes compliance with all laws and regulations that apply to its businesses, including those named above. Compliance efforts are implemented through an integrated Groupwide structure that includes the designation of sections responsible for managing compliance, efforts to promote employee training, and efforts to monitor the state of compliance, thereby ensuring thorough compliance within the Group.

In addition, as necessary, measures are taken with the cooperation of lawyers, consultants and other experts as well as professional organizations.

If each item is also related to laws and regulations, the impact of laws and regulations is indicated in the relevant item.

6. Risks related to market trends, products, and services in specific businesses

The OKI Group divides its business segments into the following: (i) Solution Systems and (ii) Components & Platforms. The Group undertakes its business activities in accordance with comprehensive strategies drafted for domestic and international markets centered on the products and services handled in each segment. The following is a list of items that may affect the OKI Group's business performance and financial status in each business.

(i) Solution Systems Business

In the fiscal year under review, net sales totaled 179.4 billion yen (accounting for 49% of consolidated net sales), and operating income was 8.5 billion yen. The business domains for this segment are wide-ranging and include various social infrastructure systems, systems for telecommunications carriers, systems related to financial and logistics businesses, and systems related to the Internet of Things (IoT).

In particular, in recent years, society's expectations of and remarkable advances in digital transformation (DX), the rapid technological evolution and utilization of IoT and AI, and the development of 5G services for social implementation have made it clear that it is important for the Solution Systems Business to focus on these areas and achieve sustainable growth.

If we fall behind in these technological developments and applications, we may miss new business opportunities in the area of social infrastructure, such as monitoring and conducting predictive maintenance to use aging infrastructure safely and securely.

In addition, in the area of private demand, we may not be able to respond to changes in our customers' business environment and demands, and we may lose our competitiveness and lose not only new business opportunities but also markets in existing business areas.

Many of the areas of new solutions are still in the concept validation stage, of responding to the challenges our customers face, and we are concerned about potential delays in full-scale market launches.

In response to these risks, with the aim of expanding our business in each business area, we are conducting task force activities to share information on our customers' business environment in each area, the progress of introducing new solutions, etc., examine the horizontal expansion of OKI's DX solutions and products across business areas, and share and utilize information with co-creation partners in the DX area. In addition, in order to expand AI edge technology, which is a pillar of OKI's DX strategy, we are developing in-house AI talent and building AI edge partnerships to ensure sustainable co-creation activities.

In the area of TOKKI systems, we entered the aviation equipment market on April 1, 2022, taking over the business with the aim of achieving sustainable growth by expanding our business domain and expanding our portfolio. We are promoting appropriate PMI measures such as increasing efficiency through integration.

(ii) Components & Platforms Business

In the fiscal year under review, net sales totaled 189.2 billion yen (accounting for 51% of consolidated net sales), and operating loss was 0.1 billion yen. The business field of this business consists of the component business field, which provides a variety of automated terminals and equipment as well as operational services, and the platform business field, which provides manufacturing services centered on EMS (Electronics Manufacturing Services) and DMS (Design & Manufacturing Services).

In the Components business field, it provides a wide range of products, including cash handling equipment, ATMs, ticketing terminals, and printers, to a wide range of customers, mainly those with social infrastructure. While recognizing the major trends of cashless and paperless operations, the Group recognize the importance of the continued development and release of automation and labor-saving products to address global social issues such as the growing labor shortage, work-style reform, and non-face-to-face/non-contact situations.

In the Platforms business field, it supports a wide range of manufacturing processes from the provision of components such as printed circuit boards and cables to the design, development, production, and evaluation tests of contract products. The Group recognizes that it is an important issue to increase sales in the high-end market where it excels while expanding the scope of contract processes and contract products that take advantage of the integration effects of the three fields of EMS, Automation Systems and Peripheral Products.

The OKI Group's business performance and financial position may be adversely affected if it is unable to follow market trends in the above two businesses or implement product designs and services that meet customer needs, if R&D and innovation that are not tied to existing businesses fail and new products and technologies are not created, or if it is unable to build new businesses that will become new sources of revenue.

The OKI Group is striving to ensure business continuity and growth based on accelerating product development, relocating resources to growth areas, and developing deeper business in existing markets.

In fiscal 2023, we implemented a major reorganization in order to swiftly implement our business strategy for sustainable growth.

7. Risks related to procurement

The OKI Group's business performance and financial status may be affected if the procurement activities of the OKI Group result in material procurement shortages due to unforeseen events such as natural disasters or changes in the business policies of suppliers, or if, as a result of such shortages, deliveries are delayed due to a decline in the operating rate of the OKI Group's own factories.

In addition, human rights violations in the supply chain could pose a risk of shortages or delays in material procurement, which could affect the performance of the OKI Group.

The OKI Group procures specific products, parts and materials from multiple suppliers.

In the event of a material shortage or the suspension of production facilities, the OKI Group has established a system to secure alternative suppliers, alternative production facilities and appropriate inventory management, etc. the OKI Group also carries out checks and other measures with an eye toward CSR procurement.

Through these measures, the OKI Group strives to minimize the impact of procurement-related risks.

8. Risks related to major patent-related contracts and technological support contracts

The OKI Group has concluded intellectual property-related contracts and technological support contracts with multiple firms. Failure to properly execute these contracts, unequitable terms or conditions, or failure to promptly utilize the relevant intellectual property or technical assistance may have impact on related businesses in Japan and overseas within the OKI Group.

The OKI Group's products and services effectively utilize the OKI Group's own technologies, as reflected in their performance across a wide range of aspects. On the other hand, we respect the intellectual property of others and conduct infringement prevention investigations to ensure that we do not conduct such investigations without permission into the OKI Group's products and services.

Among other activities, the specialized intellectual property (IP) and legal sections undertake a careful review of such contracts.

The OKI Group strives to control, as much as possible, the impact of risks related to intellectual property-related contracts or technological assistance.

9. Quality risks

While the OKI Group strives to ensure thorough quality control of the products and services it provides, if responsibility for quality can not be ensured, costs may be incurred for handling a recall caused by the defect, as well as liability and costs to the customer.

In response, in line with the OKI Group's Quality Philosophy, the Group strives to improve quality in business processes from product planning through manufacture, maintenance, and operations by assigning quality responsibility and authority to each business and maintaining a quality management system tailored to the characteristics of each individual business.

With regard to safety in particular, going beyond mere legal and regulatory compliance, it strives to secure safety and peace of mind in accordance with its Product Safety Basic Policy.

In addition, education, quality questionnaires, on-site surveys, and other measures are implemented to ensure thorough implementation of the system to prevent quality fraud.

For this reason, the OKI Group strives to minimize the impact of quality-related risks.

10. Risks related to mergers and acquisitions (M&As) and alliances

The OKI Group pursues a wide range of efforts, including alliances with other companies, business acquisitions, and mergers of affiliate companies in Japan and overseas in areas such as research and development, manufacturing, and sales, with the aim of expanding business scope and improving management efficiency.

Nevertheless, the OKI Group's business performance and financial status may be affected by failure to maintain the anticipated ties to its counterparties in such arrangements with regard to matters business strategies, the development of products and technologies, and fundraising, by unequitable contract terms or conditions, unilateral cancellation by a counterparty, breach of contract by a counterparty, or if the market targeted by M&As or alliances does not develop as expected.

At the beginning of transactions with counterparties, it conducts a credit check on the counterparties and use consultants, and at the conclusion of various contracts, it conducts a thorough examination of the contents by a specialized department related to internal intellectual property and legal affairs, conducts market research, etc., in an effort to minimize the impact of M & A and alliance risks.

11. Risks related to environmental protection

In its production activities, certain OKI Group plants use and emit chemicals and other substances that may lead to air, water, soil, or other pollution. The Group also generates CO2 emissions indirectly through its use of electricity and other types of energy at its plants and offices and through the use of its products by end users.

As for the transition risk (the social change risk associated with climate change), there is a rapidly growing demand from investors, customers, etc. for the control of greenhouse gas emissions through the introduction of renewable energy, etc. Failure to meet these demands, or inability to utilize OKI's strengths in IoT, AI, and control technologies for business opportunities associated with climate change, may result in lost sales opportunities.

In addition, the physical risk (risk of severe wind and flood damage due to the impact of climate change), include the risk of loss of assets at business sites, suspension of operations, and disruption of supply chains due to damage to our plants and those of suppliers.

Moreover, there is the risk of environmental pollution exceeding the permissible level due to wind and flood damage. If environmental pollution occurs, there is the risk of incurring liability for damages or losing sales opportunities.

In order to reduce these risks, the OKI Group has acquired ISO 14001 integrated certification, and is promoting compliance with environmental laws and regulations, activities to reduce environmental impact, monitoring of environmental data, consideration of the introduction of renewable energy, climate change BCP/BCM, and expansion of environmental contribution sales.

As part of these efforts, in the OKI Group Medium- to Long-Term Environmental Vision 2030/2050, the Group set a long-term goal of reducing energy-derived CO2 emissions used at all sites, including factories, to net zero by 2050. In 2022, the Group made a commitment to the SBT (greenhouse gas reduction target scientifically consistent with the Paris Agreement), and revised its vision to conform the FY 2030 goal of decarbonization to the SBT. To achieve this goal, we are promoting the introduction of renewable energy, such as by acquiring "ZEB (Net Zero Energy Building)" certification for the H1 Honjo Plant, which is Japan's first large-scale production facility to have such certification.

The Group believes that these activities limit the environmental risks associated with the OKI Group.

12. Risks related to internal systems

The OKI Group operates a wide variety of computer systems in its internal operations. With regard to the operation of the system, in order to implement appropriate use, avoid system trouble, and prevent information leakage outside the company, it takes various measures such as the establishment of various manuals, the proper handling of system equipment, and the encryption of information.

However, while measures are in place, there is a possibility of system outage or information leakage due to cyber-attacks from outside, computer virus infections, improper handling of system equipment, etc.

In particular, cyber-attacks targeting companies have frequently occurred. In December 2021, the OKI Group also experienced unauthorized access to its file servers in Japan by a third party through the servers of an overseas subsidiary. In response to this incident, the OKI Group has strengthened its countermeasures, including the introduction of endpoint security tools to all terminals and the establishment of a 24 hour, 365 day monitoring system.

In order to minimize such situation, the OKI Group has repeatedly implemented thorough employee education, monitored system operation, and developed a system for promoting information security. In particular, we are taking corrective and strengthening measures for newly identified issues.

13. Risks related to human resources

In order for the OKI Group to understand the needs of society and its customers and to continue to provide optimal products and services, it is necessary to secure diversity and suitable human resources in all areas from management to the workplace, and to ensure that each individual demonstrates his or her full potential.

The cohort of employees in their 50s is OKI Group's largest, and it is expected that more people will leave the group in the future.

In addition, it is expected that competition in the labor market will be fierce for personnel who can understand market needs and connect these with DX initiatives, who can play an active role globally, and who can realize competitive manufacturing.

Against this backdrop, the OKI Group's medium- to long-term business promotion in the future may be affected if it is unable to supplement departing employees or secure the human resources required in its business plan. In order to secure human resources sufficient in terms of both quality and quantity, the OKI Group has achieved an increase in recruitment by reviewing and strengthening its recruitment methods and developing various recruitment formats and channels, etc., and is developing human resources based on the spread of full-participation innovation, shift personnel between businesses, and utilize senior human resources.

We are also creating a workplace where diverse human resources can play an active role by introducing a system to realize work styles that are non-restrictive in terms of time and place, evaluating roles and their execution, and continuing education on diversity.

As mentioned in the section on country risk, the OKI Group recognizes the risks associated with infectious diseases. Although there are differences among countries and regions, there are still concerns about the spread of the COVID-19, including the continued emergence of mutant strains. In addition to continuing to implement preventive measures, overseas production sites are taking steps to minimize the impact on their business, including checking suppliers. In fiscal 2019, the OKI Group established a task force to check the status of the OKI Group as a whole and promote measures against the COVID-19, while also using these measures as an opportunity to review work styles. Although the task force was dissolved on March 31, 2023 after comprehensively assessing government policy and the infection status of the OKI Group, infection prevention measures continue to be taken.