Ultrafabrics Holdings Co.,Ltd.

The overseas sales ratio is extremely high, at 98.5% in the previous consolidated fiscal year and 98.6% in the current consolidated fiscal year, and the Group is directly affected by exchange rate fluctuations through the yen conversion of overseas subsidiaries' financial statements. While hedging transactions using derivatives are used to mitigate fluctuations, sudden exchange rate movements may affect financial position and operating results. In addition, international tax risks such as transfer pricing taxation associated with revisions to sales unit prices and changes in order volume also exist.

While the Group must continue to invest in the development of high-quality, high-value-added products, there is a risk that competitiveness will decline and business performance will be affected if Asian manufacturers come to stably supply products of comparable quality at lower prices. The Group must continue to invest in product development regardless of fluctuations in revenue, resulting in a fixed cost burden.

In the event of a disaster such as an earthquake, typhoon, fire, war, or infectious disease, business activities at the Group's sites may be disrupted, potentially affecting financial position and operating results. Production sites are concentrated at three domestic locations—Gyoda City in Saitama Prefecture, Ora Town in Gunma Prefecture, and Chiyoda Town in Gunma Prefecture—and there is a risk that power outages or energy supply restrictions could lead to a halt in operations and production and shipping activities.

Raw materials such as base fabric and resin, fuel, and transportation costs are procured both domestically and internationally, and there is a risk that costs will rise due to heightened geopolitical risk, natural disasters, deterioration in suppliers' business conditions, or supply constraints resulting from increased market demand. While the Group seeks to absorb these costs through improved production efficiency and has taken measures such as raising prices on certain products and shifting transportation costs to customers, cost increases may still affect business performance.

Substantial amounts of goodwill and trademark rights arising from corporate acquisitions are recorded on the consolidated statement of financial position, and if the assessed value falls below book value due to changes in the business environment or other factors, an impairment loss must be recognized. The likelihood of occurrence is assessed as "high," and there are concerns regarding the impact on financial position and operating results.

The Group depends on specific suppliers for raw materials such as base fabric and resin, and there is a risk that procurement could be significantly disrupted due to raw material shortages caused by a surge in demand, natural disasters, quality issues, or a supplier's bankruptcy, business failure, or merger. A sharp rise in purchase prices could also affect business performance. While the Group strives to maintain close relationships with specific suppliers and ensure stable procurement, securing alternative sources of supply remains a challenge.

The Group holds confidential information such as business partner information and technical information, and if a computer virus infection, unauthorized external access including cyberattacks, a disaster, or other event causes a shutdown of information systems or an information leak, it could disrupt business activities and damage credibility. The Group works to reduce this risk through the development of policies and regulations, employee training, and the introduction of security equipment and fraud detection technology.

A certain scale of sales is recorded from specific customers, and increasing dependence on these customers is anticipated, meaning that changes in order trends from such customers could directly affect business performance. If the customer base does not become more diversified, there is a risk that changes in policy or deterioration in performance at specific customers will be directly linked to the Group's revenue.

Working capital and capital expenditure funds are procured mainly through borrowings from financial institutions, and in a rising interest rate environment, increased interest payments could worsen the financial balance. While interest rate risk on long-term financing is hedged through interest rate swap transactions, if the Group breaches financial covenants in its loan agreements, this could result in demands for higher interest rates or loss of the benefit of time, which may affect borrowing costs and the Group's ability to raise funds.

As the Group has production sites in Japan and supplies products to global customers through its US sales operations, significant changes in tariff rates resulting from changes in US tariff policy could affect financial position and operating results. The Group seeks to mitigate this risk by continuously monitoring tariff trends and regulatory changes, and by reviewing transaction structures and supply chains and passing on costs to sales prices as necessary.