KOMATSU MATERE Co., Ltd.

The Group, whose primary markets are Japan, Asia, the Middle East, Europe, and North America, is directly affected by economic downturns and demand declines in each region. In addition, the expansion of protectionist trade policies and rising geopolitical tensions may constrain sales activities, potentially affecting operating results and financial condition. In cases of high dependence on specific regions, localized risks tend to spread more easily to overall performance.

In production and sales activities across Asia, the Middle East, Europe, and North America, various risks exist, including political and economic instability, changes in laws and regulations, labor disputes, difficulty securing human resources, and social disruptions such as war and terrorism. Although the Group considers these factors in advance before expanding into new regions, the occurrence of unforeseen risks may affect operating results and financial condition. As the ratio of overseas sales increases, exposure to these risks also expands.

The Group holds important information such as customer information, technical information, and production data, and faces risks of information leakage, loss, or system outages due to cyberattacks such as unauthorized access or ransomware, or internal misconduct. If such incidents occur, they may have a material impact on operating results and financial condition, including difficulty in continuing business operations, deterioration of brand value, and the occurrence of liability for damages. As dependence on information systems increases, continuous strengthening of countermeasures is required.

The Group, which conducts production and sales worldwide, prepares its consolidated financial statements by converting transactions denominated in local currencies into yen, and is therefore affected by exchange rate fluctuations. In particular, if a trend of yen depreciation continues, procurement costs for raw materials and fuel may rise, putting pressure on profitability. Exchange rate fluctuations beyond forecasts are recognized as a risk that directly affects operating results and financial condition.

For the Group, which mainly processes and sells synthetic fibers, energy costs and raw materials account for a large proportion of cost of sales. If procurement costs rise due to a surge in crude oil prices, it may become difficult to address the impact through price pass-through or productivity improvements alone, potentially adversely affecting business performance. Since crude oil prices are subject to external factors, cost management is highly challenging.

The Group possesses proprietary technologies and know-how that differentiate its products from those of other companies; however, in certain regions, complete protection through intellectual property rights is difficult, and it may not be possible to prevent third parties from manufacturing similar products. The Group also recognizes the changing environment in which recent advances in digital and AI technologies are making it easier to imitate manufacturing know-how, increasing the risk of erosion of competitive advantage. Although the Group makes its best efforts to protect its intellectual property, there are limits to fully preventing such imitation.

The Group works to reduce its environmental impact through the "Komatsu Matere Environmental Policy" and the promotion of sustainable materials and businesses under its medium-term management plan. However, if adverse environmental impacts occur, this could lead to a decline in brand value and a slowdown in sales activities, and the strengthening of environmental regulations in Japan and overseas is also expected to increase compliance costs. Amid the continuing trend toward stricter regulation, delays in response could also lead to a decline in competitiveness.

The Group's domestic production sites are concentrated in Ishikawa Prefecture, and actual damage occurred in the Noto Peninsula Earthquake on January 1, 2024. Large-scale disasters exceeding expectations, such as earthquakes and typhoons, could damage production facilities, and global outbreaks of infectious diseases could disrupt supply chains, causing production to halt and having a material impact on production activities and financial condition. While the Group continuously reviews its Business Continuity Plan (BCP) based on lessons learned from past large-scale disasters, the risk of geographic concentration remains a structural challenge.