Fujibo Holdings, Inc.

In the abrasives business, production is based in Taiwan, while in the life apparel business, the ratio of overseas production, including in Thailand and elsewhere, has reached over 90%, with sales and exports also conducted in Taiwan, Hong Kong, Central America, and Caribbean countries. Unexpected changes in political or economic systems, or social unrest such as terrorism, in any of these countries could adversely affect the Group's financial position, business performance, and cash flows. The Group is diversifying its production bases from a BCP (business continuity planning) perspective, but complete avoidance of such risks is difficult.

In the life apparel business, the Japan side bears the foreign exchange risk associated with overseas production in China, Thailand, and elsewhere, while in the abrasives business, the export ratio is high, and yen appreciation against the US dollar in particular could lead to price reduction requests from customers. The Group implements risk hedging through forward foreign exchange contracts and balancing of foreign-currency-denominated import/export transactions, but there remains a risk that planned procurement, manufacturing, and sales activities cannot be executed due to medium- to long-term exchange rate fluctuations. In particular, as business expands in the Asian region, the absolute amount of foreign exchange risk tends to increase.

For the mainstay brand "B.V.D." of the life apparel business, the Group has entered into an agreement with THE B.V.D. LICENSING CORPORATION for trademark usage rights, manufacturing rights, and sales rights, holding exclusive sales rights in Japan and Taiwan, and non-exclusive sales rights in China, Hong Kong, Macau, Singapore, and Thailand. While the relationship is currently favorable, non-renewal of the contract due to unforeseen circumstances could shake the foundation of the life apparel business and have a material adverse effect on the Group's financial position, business performance, and cash flows.

In the abrasives business, products for the IT industry, such as CMP (semiconductors), silicon wafers, hard disks, and LCD glass, account for a significant portion of business, and an economic slowdown in the IT industry in major markets such as Japan, North America, Asia, and Europe would directly lead to decreased demand. The chemical industrial products business, chemical products business, and mold business also have high dependence on specific customers and products, and trends among outsourcing clients and short product life cycles increase the risk of performance fluctuations.

Given the risk that filing patent applications discloses manufacturing methods and leaks know-how to competitors, the Group intentionally refrains from filing patent applications for some products, which creates the possibility that competitors may file and obtain the same patents first. The Group addresses this by asserting "non-exclusive license rights based on prior use," but resolution is expected to require time and expense. Furthermore, it is impossible to fully protect proprietary technology and know-how through intellectual property rights, and if the Group is unable to effectively prevent third parties from manufacturing similar products, this could lead to deteriorating business performance and worsening relationships with business partners.

Product manufacturing is subject to regulations such as the Water Pollution Control Act, the Air Pollution Control Act, and the Noise Regulation Act. While the Group currently meets regulatory standards through the installation of countermeasure equipment, further capital investment would be required if regulations are tightened or additional substances are designated in the future. In addition, as an entity subject to the Personal Information Protection Act, the Group implements measures such as defense against unauthorized external access and virus infection, and strengthening of internal management systems; however, in the event of a personal information leak, this could result in loss of trust, impact on business activities, and post-incident response costs, which could adversely affect the Group's financial position, business performance, and cash flows.

While the Group has product liability insurance, there is no guarantee that it would fully cover the final amount of damages in the event of a major quality issue. If a quality issue leading to large-scale product liability claims occurs, it could significantly affect the Group's reputation, and the resulting decline in sales and deterioration in profitability could adversely affect the Group's financial position, business performance, and cash flows.

Tangible and intangible fixed assets recorded on the consolidated balance sheet for the fiscal year under review amounted to ¥41,597 million, of which tangible and intangible fixed assets in the life apparel business amounted to ¥1,612 million. In the life apparel business, the Group is scaling back and withdrawing from unprofitable areas in response to changes in the business environment, which may result in the recognition of impairment losses. In addition, with respect to goodwill arising from acquisitions, if the recoverable amount falls below the book value due to a significant decline in business earnings or other factors, an impairment loss may be recognized.

Operational shutdowns due to increasingly severe abnormal weather and rising raw material procurement costs due to global warming could significantly affect business performance, and the introduction of carbon taxes or the need for low-carbon/decarbonization investments due to stricter greenhouse gas reduction regulations could adversely affect the Group's financial position, business performance, and cash flows. The Group is advancing disclosure in line with TCFD recommendations, working to reduce its environmental impact, and implementing measures to mitigate climate change risk.

In order to realize its goal of becoming a "global niche top manufacturer," securing highly skilled personnel, including female talent and global talent, is an important challenge; however, intensifying competition for talent acquisition due to the declining birthrate and aging population may make it difficult to secure the necessary personnel. If the Group is unable to promote personnel acquisition and development, this could hinder the execution of business activities and become an impediment to sustainable growth. The Group is working to create a corporate culture that "respects the individual and fosters harmony," develop personnel through the acquisition of business skills and the cultivation of human capabilities, and improve the working environment to accommodate diverse employment needs.