Companies are being required to comply with increasingly strict regulations around the world. The Company's Compliance Committee convenes twice yearly to discuss and decide items related to major policies and maintain systems to promote and enhance compliance. The Group has set September as the comprehensive compliance inspection month during which officers and employees review their own actions and business processes, and conduct compliance promotion activities. On the day designated as "Compliance Day," NYK's Chief Compliance Officer personally delivers a message on compliance, and a compliance training session is held by a lawyer to discuss cases that have occurred in the NYK Group.
Moreover, the Group maintains an Executive Committee Overseeing Thorough Antitrust and Anti-bribery Law Compliance dedicated to ensuring complete Group compliance with not only specific laws such as the Antimonopoly Act, laws related to bribery, and economic sanctions, but also compliance of all laws, regulations, and licenses.
However, there is a possibility that compliance risks cannot be completely avoided, and in the event of a situation that conflicts with laws or regulations, etc., the Group's business operating performance and financial condition may be affected by the deterioration of the Group's social credibility and brand image, the payment of compensation for damages that occur, etc.

Based on our corporate philosophy of "Bringing value to life," the Group is engaged in a broad network of Logistics Business via sea, land, and air. We recognize the safe operation of vessels and aircraft and environmental protection measures as our top priority.
In the NYK Group's marine transportation business, we strive to ensure safe operations by implementing assessments based on our own safety standards "NAV9000". We have established "the Safety and Environmental Management Committee", chaired by the NYK president, to periodically review safety measures for shipping and other operations, and the system for improving the Group's safety levels is constructed. We prepare to ensure appropriate responses in the event of an emergency. Nevertheless, in the event of an unforeseen accident, such as an oil spill or some other type of environmental pollution, injury to or death of a seafarer passenger, or people visiting the vessels including people related to cargo handling, outbreak of a serious accident leading to damage to or loss of a vessel, outbreak of an infectious disease on board, quarantine strengthening resulting from a global epidemic of an infectious disease, or a safety-related incident such as an act of piracy or terrorism, the Group may face cargo delay or disruption, cancellation of transportation contracts, nonfulfillment of financial obligations, administrative fines, lawsuits, penalties, business restrictions, insurance premiums, or deterioration of our reputation and customer relations. If such risks cannot be adequately covered by insurance, the Group's business performance and financial condition could be affected.
The Group's Air Cargo Transportation Business covers a wide range of regions around the world, and we are working to ensure safe operation by establishing a company-wide safety promotion system based on our safety policy "Safety Takes Precedence Over All." However, in the event of a serious aircraft accident leading to the death or injury of a crew member, loss or damage of an aircraft; a problem that seriously impairs the safety of an aircraft; a cause that seriously impairs the operation of an aircraft; or political instability, terrorism, spread of diseases such as COVID-19, or natural disaster in each region, the Group may face freight delays and disruptions, cancellations of transportation contracts, nonfulfillment of financial obligations, administrative fines, lawsuits, penalties, business restrictions, insurance premiums, or deterioration of our reputation and customer relations. If such risks cannot be adequately covered by insurance, the Group's business performance and financial condition could be affected. If the safety of an aircraft cannot be confirmed, we may voluntarily suspend the operation of the aircraft and perform maintenance, such as inspections, until safety can be confirmed.
Our group companies operate aircraft in accordance with international conventions, bilateral agreements, IATA (International Air Transport Association) decisions, and other international agreements, and our Group's Air Cargo Transportation Business may be subject to the restrictions of the Antimonopoly Act on the setting of fares and charges. In addition, we expect costs for security measures to increase as laws and regulations related to the strengthening of aviation security continue to advance on a global scale, particularly in the U.S. Moreover, efforts to reduce environmental impact are steadily underway in the field of civilian international aviation. If measures costs increase due to tighter regulations, the Group's business performance and financial condition could be affected.

There are risks of paralysis of the head office function of the management system, the business continuity risk caused by paralyzing the management system at the NYK headquarters, and the business continuity risk caused by paralyzing the operation system at our major offices if our headquarter or major office would suffer from natural disasters such as earthquakes, tsunamis, tornados, cold waves, etc., and social disruptions resulting from wars, terrorism, conflicts, and other reasons.
NYK has prepared business continuity plans (BCPs) for all the major operations so that the Group will be able to keep its important functions uninterrupted wherever possible, or quickly restore them if interrupted. If these events occur, however, the NYK Group's business performance and financial condition could be affected.

Currently the smooth operation of IT system is essential corporate foundation for the operations of the NYK Group. We work to ensure the safety and stability of its system even in the event of earthquakes, fires, or other calamities. In addition to strengthening security measures against cyber-attacks with the zero-trust security model in mind, we are also focusing on damage minimization and early recovery, conducting regular training and establishing a global management system. However, if a system downturn takes place for a certain period of time or more, or if the provision of information to customers and business processes become delays, the Group's performance and financial position could be affected.

The NYK Group recognizes that climate change, one of the elements of ESG, is an important management issue. In our medium-term management plan "Sail Green, Drive Transformations 2026 -A Passion for Planetary Wellbeing," which announced in March 2023, the Group has redefined the position of EX (Energy Transformation) as a management strategy and formulated specific initiatives, including financial impact.
To further strengthen this content, we announced the "NYK Group Decarbonization Story" in November 2023 and disclosed our decarbonization strategy towards 2050.
We will set ambitious GHG reduction targets in line with the latest scientific findings of the 1.5℃ target level, and strive to reduce GHG emissions throughout the Group with the aim of achieving a decarbonized society.
However, in order to achieve this long-term target, it is essential to commercialize zero-emission fuels such as ammonia and hydrogen, and for this, major technological innovations from the current level are needed. Since large oceangoing vessels are used for 15 to 20 years or so, even if innovative technologies become available, considerable time and cost are expected to be incurred to spread them to vessels worldwide. Based on this recognition, in the process of technological innovation and realization, we believe that it is necessary to gain an understanding of the commensurate burden on society while responding to the demand for transportation required for sustainable global growth with solutions with the lowest environmental impact at the time.
If the Group fails to adequately respond to climate change risks in the future, we may lose customers, deteriorate our relationships with local communities, or be unable to obtain financing for vessels, and the Group's business performance and financial condition could be affected.

Based on its medium-term management plan, the NYK Group has implemented concrete measures to achieve our vision of "We go beyond the scope of a comprehensive global logistics enterprise to co-create value required for the future by advancing our core business and growing new ones." However, there are risks described below when executing our business strategy and implementing aggressive initiatives in next-generation growth areas.

The NYK Group uses the market value method based on the market price at the end of the fiscal year for the securities other than stocks, etc. for which there is no market price, as the basis and method of valuation for securities. Fluctuations in the stock market and other factors may affect the NYK Group's business performance and financial condition.

The NYK Group base our corporate activities on understanding that the human rights of all people affected by our business activities must be respected, and recognizing and respecting diverse values and different cultures, and in November 2022, the NYK Group established "the NYK Group Human Rights Policy" based on "the Guiding Principles on Business and Human Rights" adopted by the United Nations Human Rights Council as a guideline for fulfilling its duties. The Group have established an internal committee to regularly receive advice from third-party organizations with expertise to promote efforts to respect human rights, including human rights due diligence.
We have also formulated "CSR Guidelines for Partners and Suppliers" as global social issues such as forced labor, child labor, and environmental destruction become apparent throughout the supply chain while we develop the global business activities. However, in the event of a human rights problem in the NYK Group's business activities, our business performance and financial condition may be affected due to the deterioration of our social credibility and brand image.

The spread of infectious diseases, including COVID-19 and influenza, could still have a significant impact on all of the NYK Group's businesses. The Group will continue to place the highest priority on preventing the spread of infectious diseases and ensuring the safety of employees, and to safely operate our vessels to engage in the stable transport of energy, resources, and other goods that support our daily lives. On cruise ships, due to a change in the classification of infectious diseases, we no longer take measures specifically for COVID-19, but we continue to conduct commercial cruises in accordance with our existing infectioncontrol plan, including hand washing and hand sanitization.
However, the Group's business operations, performance, and financial conditions may be affected by an increase in the number of employees out sick at certain offices, which could temporarily delay the provision of services, or by the spread of infection on individual vessels, which could affect operations, or by the provision of services to areas where infection has spread being affected.

For the safe operation of NYK Group's vessels, it is particularly important to ensure excellent mariners. The NYK Group has taken a variety of measures to secure superior seafarers, including providing education and training and adopting them from various countries, but there is no guarantee that in the future, we will be able to sufficiently secure seafarers with the required technical level at an appropriate cost. For example, during the years prior to the Lehman crisis in 2008, when demand for marine transportation was high, personnel costs to hire crew increased significantly. If COVID-19 expands again or a new type of epidemics break out and the required seafarers cannot be employed, maintained, or replaced at reasonable expense, the Group's business operations could be affected.
In each region where our Group carries out its business, the vessels of our Group must comply with international laws on safe operation and prevention of marine accidents. In addition, local laws and regulations regarding environmental protection must be observed.
Recognizing the importance of environmental conservation activities and logistics supply chain safety and security measures, the Group is conducting and expanding its business globally. For example, we are promoting R&D for future alternative fuels such as ammonia and hydrogen, expanding the construction of LNG / LPG / methanol-fueled vessels, expanding the construction of LNG bunkering vessels, reducing CO² emissions through energy-saving navigation, installing treatment equipment for ballast water management, complying with regulations concerning the prevention of the migration of marine objects such as algae, shellfish, and moths, and introducing cyber-security measures. If, in the future, the costs of measures associated with them increase, or if it becomes difficult to comply with laws or regulations in a particular region, the operation of our Group in that region will be restricted and the Group's business performance and financial conditions could be affected.

Because the NYK Group's operations extend to many areas around the world, economic conditions in each area can influence our operations. Some potential risks are described below.

• Political or economic factors
• Public regulations, such as business or investment permissions, taxes, foreign exchange controls, confiscation of international assets, antitrust, or commercial limitations
• Joint operations or tie-ups with other companies
• Social upheaval, such as wars, riots, terrorist acts, piracy, infectious diseases, strikes, and cyberattacks
• Earthquakes, tsunamis, typhoons, and other natural disasters
• Inadequate understanding of regulations and sanctions in each country

The NYK Group collects information in-house and uses external consultants to prevent or avoid the actualization of these risks. However, the occurrence of these events could affect the NYK Group's business performance and financial condition. Some of our group's employees, including seafarers, belong to the labor union. If a strike, suspension of business, or sabotage is performed by our group's employees, or if a strike or suspension of business by a third party other than our group's employees, such as a port facility in North America, may also affect our group's business operations. Furthermore, the wars and politic factors can also affect our group's business operations.
The NYK Group is affected by the security, political instability, and the strengthening of regulations and sanctions in various countries due to the conflicts and terrorism around the world, including the Middle East, and the situation in Russia and Ukraine. Although the damage from piracy has been decreasing in recent years, the piracy still occurs around our vessels' route such as the Malacca-Singapore Strait, the Selves-Sulu Sea, the West African coast, and Somalia pirate attack area such as the Arabian Sea, and the Indian Ocean. In the Red Sea and Gulf of Aden, where the situation is becoming increasingly tense due to a series of Houthis attacks, the NYK Group's vessels have suspended navigation. The Group has taken countermeasures against piracy including gathering information from relevant organizations. However, in the event of terrorist and piracy strikes, or in the event of instability of political situation or fights, it may affect the operations of our group. In the future, if these areas are designated as exclusion areas for normal war insurance (some areas have already been designated), they may affect the level of premiums and the insurance payout from insurance companies. The insurance premium rates in the Red Sea, Gulf of Aden, and off the coast of Somalia are constantly fluctuating, and currently, they are moving towards an increase. In addition, regarding some businesses such as Logistics Business, we may decide to downsize, abolish, or withdraw from the business activities due to the deterioration of the business environment depending on the security and political instability in the country where the business is conducted. In such cases, the business performance and financial conditions of the NYK Group may be affected.

The NYK Group is engaged in Liner Trade Business, Air Cargo Transportation Business, Logistics Business, Bulk Shipping Business, Real Estate Business, and Other Business Services. There is a risk of litigation, investigation, or punishment by regulatory authorities concerning all these business activities. Including the examples below, depending on the outcome, litigation could affect the business performance and financial condition of the NYK Group.
Since September 2012, the NYK Group has been the subject of class action civil lawsuits in some areas seeking damage compensation and injunctions without specifying the amounts claimed, based on the allegation that the NYK Group and major automobile shipping companies jointly set freight rates with respect to the ocean transportation of finished vehicles. It is difficult to reasonably estimate the outcome of these lawsuits at this moment.