Dexerials Corporation

With overseas sales accounting for a substantial portion of revenue, political and economic conditions, changes in laws and regulations, high tariffs and trade restrictions, and destabilization of social infrastructure in the countries where the Group operates may affect business operations. If unpredictable events such as terrorism, war, or infectious disease outbreaks occur, there is a risk of decreased sales, increased costs, and business disruption. In response, the Group continuously monitors conditions in each country and flexibly reviews its supply and sales systems.

With advancing technological innovation and intensifying cost competition, competitors may launch lower-priced, higher-performance products, and price negotiations with customers may result in product price declines that exceed the Group's cost reduction efforts. There is a risk that an increasing sales ratio of lower-margin products may make it difficult to secure sufficient profit. The Group addresses this through product development leveraging differentiating technologies and cost reduction via improved manufacturing processes and higher yields.

If the shift toward the Photonics business and the Automotive business does not proceed as planned, the Group's dependence on consumer IT products may continue, creating a risk of significant demand decline for its products should demand in that market weaken. Even in growth areas, demand may fluctuate due to changes in market conditions and technology trends. The Group strives to maintain soundness through objective assessment of the situation in each business and portfolio management.

In M&A transactions, business alliances, and strategic investments, unforeseen problems may emerge after the investment is executed despite prior due diligence, or the performance of an investee may not develop as expected, potentially resulting in a decline in investment value, additional expenditures, or recognition of impairment losses. There is also an inherent risk of declining business profitability due to changes in market conditions and price trends. The Group addresses this through due diligence and economic evaluation prior to executing investments and continuous progress monitoring after execution.

In markets where the pace of technological innovation is rapid, if competitors develop and introduce technologies or superior products that replace the Group's mainstay products, demand for the Group's products may decline. Since a substantial portion of sales and operating income depends on specific mainstay products, changes in the technology environment directly affect business performance. The Group strives to maintain technological competitiveness through its company-wide R&D framework,

If recruitment does not proceed as planned amid intensifying competition for specialized talent, this could lead to slower development speed for next-generation products and lost market entry opportunities, directly affecting sales and profitability. The failure to pass on tacit knowledge upon the retirement of veteran engineers and insufficient retention of local talent at overseas locations pose risks of reduced technical proposal capability and constraints on global business expansion. The Group addresses this through global recruitment and promotion of diverse talent, grade-based training and self-development support programs, and enhanced engagement through the J-ESOP program.

Advances in digital technologies, including generative AI, are making cyberattacks more sophisticated and elaborate, raising the possibility of information leakage or business disruption due to unauthorized access or malware infection. Leakage of technical or customer information poses a risk of significant impact on business operations through loss of trust and the emergence of legal liability. The Group addresses this through multi-factor authentication, web access controls, security monitoring by a dedicated team, establishment of a CSIRT framework, and ongoing employee education.

As the Group uses many raw materials whose production areas and suppliers are limited, continued reliance on a single supplier or concentration in a specific region poses a risk of procurement disruption triggered by geopolitical tensions, natural disasters, or regulatory changes. A sharp rise in procurement costs would push up manufacturing costs and affect profit, and failure to meet customer requests for supply chain information disclosure could also result in the risk of lost business. The Group addresses this by diversifying and geographically dispersing its supplier base, securing alternative procurement candidates in advance, and reviewing its safety stock policy.

Amid intensifying technology hegemony competition between nations and strengthened economic security policies in various countries, if the Group's products or raw materials become subject to export control regulations, sales to specific customers or regions may be restricted. There are also risks of reduced price competitiveness and lower profitability due to the imposition of additional tariffs, and of dysfunction across the entire production and logistics network in the event of a crisis in the East Asia region. The Group addresses this through continuous monitoring of regulatory trends and customer developments in each country, cross-organizational information gathering, and consideration of alternative procurement means.

The Group is exposed to foreign exchange rate fluctuation risk, primarily related to product sales transactions denominated in foreign currencies, and fluctuations in the exchange rate of the US dollar in particular may affect its financial position, business results, and cash flows. Since foreign-currency-denominated assets and liabilities, including those of overseas affiliated companies, are translated into yen when preparing the consolidated financial statements, a stronger yen would put pressure on earnings. The Group hedges foreign exchange rate fluctuation risk related to foreign-currency-denominated sales transactions through the use of forward foreign exchange contracts and currency option transactions.