Abalance Corporation

The US government's decision to end tariff exemptions for four Southeast Asian countries including Vietnam, apply anti-dumping and countervailing duties, and further impose a 10% baseline tariff and reciprocal tariffs (currently suspended for 90 days) on all imported goods, has significantly affected the US sales strategy of the Solar Panel Manufacturing Business, which centers on Vietnam-based operations (VSUN and others). As countermeasures, the Group is constructing a cell factory in Ethiopia and a panel factory in Texas, USA, to build a supply structure advantageous under tariff policy, while also promoting sales diversification into markets such as Europe and India/Asia.

Oversupply continues in the global market due to increased supply capacity from Chinese companies, and the resulting decline in Solar Panel and component prices is affecting the Group's profitability. Amid the intensifying competitive environment and continued decline in selling prices, the Group is working to optimize its overall supply chain through in-house manufacturing (Ingot/Wafer and cell in-house production) in Vietnam, and to maintain competitive advantage through the construction of a new factory for the US market.

As disclosed on December 19, 2024, a major solar panel manufacturer has filed claims for damages and an injunction against the Group (the Company and seven subsidiaries) alleging patent infringement related to solar panel products (the amount in dispute is undetermined), which may have a material impact on business continuity and financial condition. The Group is working with a US patent specialist law firm to carefully examine the plaintiff's claims and demands, and intends to assert the legitimacy of its position.

The Group operates broadly across Asia, the US, Europe, Africa and other regions, and its management plans may be affected by economic security risks such as US-China tensions, changes in tax and tariff systems in various countries, the establishment or revision of laws and regulations, and unexpected political or economic developments. The Group continuously monitors and analyzes risk-related information and regulatory trends in each region, and is particularly focused on risks related to the Solar Panel Manufacturing Business in the US, a key sales market, as a material risk.

Major components for the Solar Panel Manufacturing Business are procured from overseas markets, and if the supply chain is disrupted by large-scale natural disasters such as typhoons or earthquakes, the spread of infectious diseases, or geopolitical risks, delays or stoppages in supply to customers may occur. As countermeasures, the Group is working to enhance supply chain resilience through stable procurement via strategic partnerships with silicon suppliers, promotion of in-house Ingot/Wafer and cell production, and regional cell production that takes into account each country's tariff policies.

Since the core Solar Panel Manufacturing Business is conducted in overseas markets, exchange rate fluctuations pose a risk to the yen-denominated conversion of financial statements. In addition, interest rate fluctuations resulting from changes in financial markets may affect funding costs. The Group works to diversify funding methods and improve efficiency through centralized management of Group cash, aiming to reduce the impact on business performance and financial condition.

There is a risk that cyberattacks, information leaks, or similar incidents could lead to the leakage of personal information or important business information, resulting in loss of customer trust, claims for damages, and impacts on business activities due to operational suspension or delayed recovery. The Group regards cyberattacks as a significant management risk, has established a security response framework within the Group, and is strengthening countermeasures against virus infections and unauthorized access through both human and technical measures.

If actions in violation of laws or contrary to societal expectations occur, there is a risk of legal penalties, litigation, and social sanctions, resulting in a loss of stakeholder trust. Centered on the Compliance Committee, the Group works to thoroughly instill compliance awareness across the Group by suppressing risk from the perspectives of motive, opportunity, and rationalization, establishing an internal whistleblowing system, and developing internal control systems.

Changes in policies and regulations related to climate change measures, trends in technological development, and changes in the market environment pose risks to the Group's growth strategy and business operations. While the expansion of the renewable energy market represents a growth opportunity, relative competitiveness could decline if the Group is unable to adequately respond to changes in the competitive environment. The Group continuously monitors policy, technology, and market trends, and works to maintain and enhance its competitiveness and strengthen its business foundation.

Since the Group's main businesses are conducted in overseas markets, there is a risk of being affected by changes in trade policy and renewable energy-related policy in various countries. Changes in tariffs and investment regulations in overseas markets may alter the business environment and impact management plans such as the medium-term management plan. In response to changes in product demand and market conditions, the Group is implementing appropriate risk control by securing a sustainable competitive advantage and closely monitoring market environment trends.