Kuroda Group Co.,Ltd.

If a large-scale natural disaster (earthquake, flood, etc.), infectious disease outbreak, terrorism, conflict, or other unforeseen event occurs, this could disrupt the supply chain or halt operations, resulting in the risk of suspension of service provision to customers and shipment of products and goods. The impact is assessed as "high," with the potential to cause serious disruption to business continuity. The timing of occurrence has not been identified.

If a cyberattack causes a virus infection, unauthorized access, or other event that results in a serious failure of systems or communication networks, this could lead to suspension of service provision to customers and leakage of confidential information, potentially resulting in reputational damage and compensation costs. The Group has established a management structure headed by the officer in charge of information security and has obtained ISO27001 certification in certain departments, but risk remains due to the increasing sophistication of cyber threats. The Group is pursuing continuous improvement through expanded ISO27001 certification.

Goodwill of ¥19,024 million arising from the going-private transaction (MBO and LBO) in 2017-2018 is recorded on the consolidated statement of financial position. If the profitability of the related businesses declines, impairment treatment could have a significant impact on business results and financial condition. The Group conducts annual impairment testing using the "Manufacturing" and "Trading Company" businesses as cash-generating units, and confirms that recoverable amounts exceed book values, but there is a risk that this situation could change due to deterioration in the business environment.

If quality defects or other issues occur in the products and goods supplied, the Group may receive claims for compensation from customers and be forced to bear damage compensation costs. The Group implements management based on international quality management standards such as ISO9001 and IATF16949, but quality issues caused by suppliers require compensation negotiations, and depending on the outcome of discussions, there remains a risk that the Group will bear the costs. The Group works to clarify the scope of responsibility by exchanging quality assurance agreements and other documents at the start of transactions.

As the Group is subject to a wide range of laws and regulations both in Japan and overseas, any violation of laws or regulations could have a significant adverse effect on business results and financial condition. The Group has established basic policies on its internal control system and various company rules, holds Compliance Committee meetings, has set up a whistleblowing hotline, and provides legal compliance training, but regulatory risks are wide-ranging given its global business operations.

Changes in trade and monetary policy or heightened geopolitical risk may cause global supply-demand conditions to fluctuate, or customers may change their purchasing policies, potentially leading to a rapid decline in demand for handled products and goods over a short period. If demand declines sharply or prices fall, this could adversely affect business results and financial condition. The Group strives to secure a competitive advantage through customer-focused business practices, but there are limits to responding to sudden changes in the external environment.

In the Trading Company business, the Group holds a certain level of inventory for the purpose of stable supply to customers. However, if changes in customers' production plans or a decrease in expected demand result in slow-moving or excess inventory, this could lead to recording of inventory write-offs or valuation losses, adversely affecting business results and financial condition. The Group works to maintain appropriate inventory levels through daily confirmation of fluctuating order instructions, coordination with suppliers, and regular inventory meetings and customer discussions.

In September 2024, the Group refinanced its LBO loan into a syndicated loan. As of March 31, 2026, the outstanding loan balance stood at ¥26,513 million, and the interest-bearing debt ratio on an IFRS basis reached 27.1%. In a rising interest rate environment, business results could be affected, and if the Group violates the financial covenants attached to the syndicated loan agreement, it could lose the benefit of the term and be required to repay immediately. There are concerns about the impact on financial condition and cash flow.

Due to the declining birthrate, aging population, shrinking labor force, and increasing demand for highly skilled personnel, securing excellent talent is becoming more difficult. If the Group is unable to secure and develop human resources as planned, this could affect business results. The Group promotes initiatives to establish employee capability development as part of its corporate culture, including providing e-learning, utilizing external training, and supporting self-development, but responding to structural changes in the labor market remains a challenge.

Overseas sales in the ASEAN region (Thailand, Indonesia, etc.) and China account for approximately 35% of net sales. Political instability, changes in laws and tax systems, changes in the competitive environment, sudden economic changes, natural disasters, war, terrorism, and other factors in these countries could adversely affect business results and financial condition. The Group continuously monitors the political and economic conditions of each country and has established a system to respond promptly, but the risk of sudden changes in the external environment cannot be eliminated.