Cominix Co.,Ltd.

Tungsten and other primary raw materials for the Group's core carbide tools business are dependent on imports from China, and tightened export controls in that country have manifested as global supply constraints and price surges. If pass-through of rising procurement costs to selling prices is delayed, this could lower gross profit margin and materially adversely affect operating results. As countermeasures, the Group is promoting the securing of safety stock, diversification of supply sources to other countries, and the shortening of quotation validity periods to build a price pass-through mechanism.

Cutting tools, the Group's principal product, are mainly used by the automotive industry, and the Group's performance is strongly affected by capital expenditure and production trends in that industry. The normalization of geopolitical risk and expanding uncertainty in the international situation arising from changes in trade policy among major countries could materially affect operating results and financial position. The Group is diversifying risk domestically through expansion into the wear-resistant/optical products segment and overseas through expansion of countries and locations of operation.

The exclusive sales agreement with Sumitomo Electric Industries, Ltd. (concluded in 1954) forms the foundation of the Group's cutting tools business, and the terms of the agreement could change due to changes in Sumitomo Electric's exclusive sales strategy or changes in its relationship with the Company. Currently, the relationship is favorable and no impeding factors, including grounds for termination, have arisen; however, if any impediment to the continuation of the agreement occurs, it would have a material impact on business activities. The degree of impact on the cutting tools business segment is positioned as the maximum (◎).

New businesses such as the e-commerce business and businesses acquired through M&A face the risk of falling into structural earnings deterioration due to price competition with competitors, higher-than-expected cost burdens, delays in business integration, and other factors. If profitability does not improve, this could result in inventory valuation losses and impairment losses on fixed assets, goodwill, and other assets, worsening ROIC, and could also result in one-time losses such as inventory disposal losses and penalty payments upon business withdrawal. As a countermeasure, the Company has established strict business withdrawal criteria based on indicators such as years elapsed, operating income/loss, total asset turnover, and budget achievement rate, and monitors these on a regular basis.

The Group is actively expanding overseas, but risks related to market trends, competition, politics, economics, laws, and foreign exchange in each country of operation could affect business strategy and operating results. Tightening of tax rates, tariffs, and other regulations could also increase losses or cost burdens. The Group reduces these risks by formulating business plans based on thorough advance information gathering and by establishing a system for rapid response, including withdrawal, when necessary.

Significant foreign exchange fluctuations could affect operating results and financial position through foreign currency-denominated import/export transactions and the yen translation of the foreign currency-denominated financial statements of overseas local subsidiaries. The Group's policy is to absorb normal foreign exchange fluctuations through gross profit margin adjustments and to transfer foreign exchange risk through selling price revisions in the event of abnormal fluctuations. The degree of impact on the overseas business segment is positioned as the maximum (◎).

The Group holds inventory of a wide variety of products, mainly cutting tools, to maintain an immediate delivery system, but if inventory becomes excessive due to changes in market conditions, inventory valuation losses could occur, affecting operating results and financial position. The Group reduces this risk by operating an appropriate order quantity determination system based on sales performance data for continuous orders, and by determining order quantities based on sales plans for new orders. The degree of impact on the cutting tools business segment is positioned as the maximum (◎).

If the online ordering system "Cominix On-Line" or the e-commerce site "Sakusaku EC" experiences downtime, malfunction, unauthorized access, computer viruses, or similar incidents, this could lead to significant loss of credibility and opportunity losses, affecting operating results and financial position. As countermeasures, the Group is reducing this risk by securing secondary servers, thoroughly backing up data, and installing firewall devices. The degree of impact on the e-commerce business segment is positioned as the maximum (◎).

The wear-resistant tools business has a high proportion of sales of can-manufacturing tools to the domestic can-manufacturing industry, and changes in technological innovation and market trends in that industry could affect operating results and financial position. As a countermeasure, the Group is leveraging the technological capabilities and know-how cultivated through domestic can-manufacturing tool sales to expand sales to the overseas can-manufacturing industry and to industries outside the domestic can-manufacturing sector.

Some of the Group's interest-bearing debt carries floating interest rate terms, and if interest rates rise more than expected, this could affect operating results and financial position. To avoid this risk, the Group's policy is to utilize conversion of interest-bearing debt from short-term to long-term and interest rate swap transactions when deemed necessary. The degree of impact on the entire company (common) is positioned as the maximum (◎).