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, 2025.

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.

Demand for OKI Group products is affected by political and economic trends in each region where the products are sold, both in Japan and overseas.

The Group's main overseas markets are the Americas, Europe, and Asia, with sales in these regions accounting for 50.0 billion yen (11.1% of consolidated net sales) in the most recent consolidated fiscal year. If energy shortages, price increases, or supply chain disruptions were to occur in these and other markets, demand for OKI Group products may decrease. In addition, manufacturing delays of hardware products could arise due to shortages in component supplies, which may affect the OKI Group's business performance and financial status.

Furthermore, an economic downturn stemming from sudden monetary tightening in individual countries and a resulting contraction in demand, import restrictions on products, changes in customs duties, the strengthening of environmental regulations worldwide, and changes to information protection and other changes in laws and regulations enforced in various countries may all impact the OKI Group's business performance and financial status.

With respect to overseas sales in each business, the Group regularly monitors sales status and strives to recognize, as early as possible, impacts from political and economic fluctuations abroad. The Group also identifies and responds to regulatory and legal trends from the Head Office in Japan, and acknowledges the need for appropriate measures such as avoiding excessive concentration of sales in any single region. For supply chain risks, the Group works to mitigate impact by diversifying procurement sources and adopting alternative components through design changes.

OKI Group operates 30 subsidiaries overseas, with numerous sales and production sites. Key production and manufacturing bases include Thailand and Vietnam, while main sales bases include Europe, the United States, and other locations such as India.

In these countries and regions, there is a risk of social disorder or disruptions in production and logistics due to the spread of infectious diseases or similar events. The Group recognizes the risk that such events may hinder the procurement of raw materials and components or cause production delays, thereby adversely affecting its business operations.

Additionally, the Group acknowledges potential exposure to incidents such as coups, conflicts, revolutions, riots, terrorism, or natural disasters, which could result in the seizure or expropriation of the Group's assets or cause personal or property damage.

In the event that such risks rise or specific crises materialize, the Group recognizes the need for measures such as securing alternative sources of raw materials or distribution routes, transferring the functions of relevant bases, and arranging supplementary personnel if labor shortages occur due to such events.

Furthermore, if a thorough analysis of the situation leads to a judgment that continued business operation is not feasible from a profitability or other perspective, the Group recognizes that withdrawal or similar responses may be necessary.

As the OKI Group develops businesses and produces principal products overseas, it is exposed to foreign exchange risk, which may be affected by political and economic trends both in Japan and abroad. As a result, the Group's financial status and business performance may be impacted.

To address this, the Group implements risk hedging such as forward exchange contracts or matching transactions under certain policies to manage imbalances in foreign currency assets and liabilities while fundamentally prohibiting speculative transactions. These measures help minimize the impact of foreign exchange rate fluctuations on the Group's business.

For reference, in the most recent consolidated fiscal year, a 1 yen depreciation in the exchange rate was estimated to have an impact of approximately a 100 million yen increase in operating profit for the euro (driven by higher profits in Europe), and a 200 million yen decrease for the U.S. dollar (stemming from increased procurement and manufacturing costs).

Interest-bearing debt in the OKI Group is subject to changes in financial markets and interest rates. As of the end of the fiscal year, the Group's outstanding long-term and short-term borrowings totaled 98.2 billion yen, with a debt-to-equity ratio of 0.7. Interest payments in the consolidated fiscal year were 2.3 billion yen. Possible developments such as rising interest rates on borrowings or restrictions in funding due to market fluctuations or changes in the Group's creditworthiness could impact its business performance and financial situation.

To manage these risks, the Group implements various measures such as interest rate swap transactions and strives to maintain sound borrowing levels, thereby limiting the impact of rising interest rates as much as possible.

A downturn in equity markets or deteriorating asset management conditions may result in a decline in the value of listed shares or pension assets held by the Group, causing losses or reductions in net assets, thereby affecting the Group's performance and financial position.

The Group aims to suppress financial market risks by reducing holdings of marketable securities and periodically reviewing pension asset portfolios.

The OKI Group is subject to a range of regulations, including business or investment permits, national security, environmental regulations, data protection, export-import restrictions based on foreign exchange, trade, competition, anti-bribery, and economic sanctions laws, as well as tax systems in both Japanese and overseas markets.

Failure to comply with such laws and regulations (including comparable and related regulations) may result in additional costs and disrupt business activities. This could also erode customers' trust and society's confidence, which may, in turn, adversely affect the OKI Group's business performance and financial status.

The OKI Group designates dedicated organizations to oversee and promote compliance with laws and regulations throughout the Group, including employee training and ongoing compliance monitoring. Where required, legal advice and cooperation from consultants or experts are sought, and the Group responds appropriately to changes in relevant laws and regulations.

In business domains such as defense, commercial aviation, and marine, the Group is working to expand production capacity and enhance supply capability in response to increases in Japan's defense budget and growth in the commercial aircraft market. Delays in component procurement due to geopolitical factors, labor shortages, or other issues may cause supply delays for contractual products, potentially missing growth opportunities. To address concerns about procurement, the Group emphasizes fulfilling product supply responsibilities to customers while considering the balance between availability and cost, strengthening in-house production capability and use of alternatives as appropriate.

In mechatronics products—such as cash handling machines, ATMs, and ticketing systems—as well as related services, the Group addresses risks posed by shrinking markets due to demographic changes and reduced cash/paper usage by enhancing its lineup for automation, labor saving, and modular solutions for partners.

Further, R&D investment targets new business opportunities in sectors such as healthcare support devices and automation for airports and manufacturing sites to address labor shortages.

Printer and PBX markets are shrinking, particularly impacted by overseas market conditions and global regulatory compliance. The Group aims to minimize negative impacts and maximize remaining business value through stronger sales and focus on promising growth areas, while actively adapting products to regulatory and environmental trends.

For EMS/DMS and component businesses, downturns in sectors such as flash memory semiconductor equipment and FA/robotics may cause demand declines, while rising costs could compress margins. The Group mitigates these risks via portfolio diversification and timely price adjustments.

The inability to keep pace with technical innovation or respond to evolving customer needs could reduce competitiveness and market share, thus affecting the Group's business.

Failure to execute the "Medium-Term Business Plan 2025" or leverage core competency in the "Edge Platform" (AI/data/component technologies) could impede achievement of growth objectives.

The Group actively invests in R&D to develop new products, services, and technologies, thereby enhancing competitiveness and identifying new business opportunities.

Anticipated growth in demand for servers, semiconductors, optical fiber, and IoT devices can result in parts shortages or price fluctuations, as may quality problems in previously sold products or order losses, all impacting sales and profitability.

The Group diversifies suppliers, increases in-house production, and enhances ability to respond to changes in the supply chain. The Group also works with suppliers to ensure stable procurement and minimize risks by developing alternative sourcing frameworks should disruptions arise.

Changes in foreign trade policies or customs duties, or supplier disruptions due to natural disasters or accidents, could result in procurement difficulties and delays; these are mitigated by continuous monitoring and swift adoption of alternatives as needed.

The Group focuses on logistics, healthcare/medical, advanced remote operations, and "CFB" (Crystal Film Bonding) as key innovation areas, collaborating with partners to enter new markets. Risks include R&D investments not matching market needs, delays or quality issues in new development, and the possibility of not achieving forecast user numbers. The Group mitigates these by revising technical and partnership strategies as risk situations evolve.

Material shortages due to natural disasters, conflicts, terrorism, or sudden changes in supplier business policy—both domestically and globally—may affect the Group's manufacturing operations and financial performance. Human rights violations occurring in the supply chain may also hinder supplier operations and result in material shortages or delivery delays.

The Group procures products, components, and materials from multiple suppliers and maintains alternative procurement sources, production capability, and inventory management as part of a systemized approach. The Group addresses human rights risks by conducting sustainability assessments of suppliers. Through such measures, the Group endeavors to minimize procurement risks to the greatest extent possible.

The OKI Group has entered into intellectual property and technical assistance agreements with multiple entities both in Japan and overseas. Inadequate performance or inequitable terms, or failure to properly utilize associated intellectual property or technology, may affect the Group's businesses domestically or abroad.

The OKI Group uses its proprietary technologies broadly in its products and services, conducts infringement prevention research, and ensures respect for third-party IP.

Careful contract review is conducted by dedicated in-house IP/legal teams, supported by specialist development and collaboration with experienced internal and external legal professionals.

The OKI Group exercises rigorous quality control at its production facilities and with production contractors in Japan and abroad to enhance product and service quality. Insufficient quality assurance may result in recall costs or liabilities to customers, with significant countermeasure costs sometimes required. Additionally, such issues can impair the corporate or product brand and erode customer confidence, adversely affecting the Group's business.

In response, the Group operates a quality management structure, assigns responsibility and authority according to business characteristics, and strives for continuous improvement in all processes—design, manufacturing, maintenance, and operation.

Group-wide systems provide centralized sharing and prompt communication of quality issues.

Safety is particularly emphasized via adherence to the Group's "Product Safety Basic Policy," beyond legal compliance.

Against quality-related risks—including fraud—the Group implements employee training, surveys, on-site audits, etc., to enforce process integrity.

The OKI Group globally pursues alliances, acquisitions, and mergers to expand business and improve efficiency across R&D, manufacturing, sales, and other fields. These efforts strengthen the business portfolio and enable sustainable growth through effective use of technology, customer, and human capital resources.

Nevertheless, if anticipated cooperation on business strategy, development, or funding cannot be maintained, or if contracts contain disadvantageous or unenforceable terms, or if planned new markets do not develop as expected, the Group's business and financial status may be negatively affected.

The Group conducts thorough credit checks on counter-parties and professional reviews of contracts from specialized internal departments and consultants, seeking to minimize related risks.

Certain OKI Group plants use or emit substances in manufacturing that could contribute to air, water, or soil pollution. CO₂ is also indirectly emitted by the use of electricity at facilities or of products by customers.

Social demands to reduce greenhouse gases and use renewable energy are increasing. Failure to respond to these demands or to leverage Group strengths in IoT, AI, or control technology for climate-related business may lead to missed sales opportunities.

Group policies include ISO 14001 certification, compliance with regulations, environmental impact reduction, renewable energy consideration, and expanding environmental sales. Through these efforts, environmental risks related to the Group are believed to be limited.

The Group uses a wide variety of computer systems in operations. It enforces appropriate use, establishes manuals, emphasizes proper handling, encrypts information, and introduces multi-factor authentication to prevent incidents.

Despite preventive efforts, threats such as cyber-attacks, malware infections, and mishandling can cause system shutdown, data loss, alteration, or leakage of confidential or personal information, potentially damaging corporate value and reputation.

The Group has implemented endpoint security across all devices and established 24/7 monitoring in response to previous incidents, and continuously strengthens education, monitoring, and organizational structures for information security.

To continuously deliver optimal products and services that address societal and customer needs, the OKI Group must secure the right human capital with diverse backgrounds and skill sets across all fields, from management to front-line operations, allowing every individual to fully demonstrate their abilities. Given the current age composition, there is a risk of increased employee departures in the near future. Furthermore, competition in the labor market is intensifying for talent capable of understanding customer needs and driving digital transformation (DX), talent with global competencies, and talent who can realize competitive manufacturing.

If we are unable to complement departing employees or secure the human capital required by our business plans, it could affect the OKI Group's medium- and long-term business development.

To ensure both the quality and quantity of human capital, we are reviewing and strengthening our recruitment methods, expanding various hiring channels, and providing more opportunities—especially for younger and mid-career employees—to take the initiative in their own growth. We also seek to elevate overall talent quality, promote internal personnel mobility, and utilize senior employees.

Furthermore, to enable a diverse workforce to work safely and comfortably in their own way, we are enhancing support systems—such as introducing a childcare leave support incentive and other initiatives that help balance work and private life—while also promoting measures to ensure employee health and safety.