OKAMOTO INDUSTRIES, INC.

The Group extensively uses raw materials derived from primary commodities such as petroleum, and soaring crude oil prices or instability in Middle East conditions leading to concerns over energy and raw material supply may affect business performance. While efforts are made to reduce risk by diversifying procurement sources, there is also a risk that stable procurement may become difficult due to business downsizing or withdrawal by suppliers. A significant increase in procurement costs would directly impact profitability.

The Group has products such as Body Warmers and Dehumidifiers that are highly susceptible to seasonal factors, and weather fluctuations such as cool summers, warm winters, low rainfall, and low snowfall directly affect demand. Although the Group strives for agile production and optimal inventory management, weather forecasting is difficult, and such fluctuations may adversely affect business results and financial condition.

The Group conducts transactions denominated in foreign currencies and is affected by fluctuations in exchange rates on its business performance. Although hedging is conducted through forward exchange contracts and other means, sharp fluctuations in exchange rates may not be fully absorbed by hedging and could affect business performance.

The Group has business bases in Asia and North America and conducts global transactions of products and raw materials, and therefore political changes, changes in economic conditions, legal amendments, terrorism, war, and similar events may affect business results. In addition, protectionist measures such as the imposition of new tariffs or substantial tariff increases pose a risk of direct and indirect impacts on business activities, profitability, and investment plans, through rising import/export costs, decreased demand for affected products, and logistics disruptions.

The Shizuoka Plant, which plays a core role in the Industrial Products business, is located in a region where a large-scale earthquake is considered possible, while the Fukushima Plant is located in a region that has experienced flood damage from typhoons in the past, resulting in a high risk of operational suspension due to natural disasters. The occurrence and spread of infectious diseases could significantly disrupt raw material procurement, production systems, and the supply chain, and while the Group seeks to minimize the impact through casualty insurance and other means, an impact on business performance may still be unavoidable in some cases.

If plants or the supply chain are damaged by abnormal weather events such as typhoons or torrential rains associated with rising temperatures, this may increase recovery costs and affect production activities due to disruptions in raw material supply. In addition, tightening of various regulations and the introduction of carbon taxes associated with the transition to a decarbonized society may impose additional cost burdens that affect business results and financial condition.

The Group recognizes the maintenance and enhancement of its corporate and product brands through high-quality products as an important management issue; however, if quality problems occur beyond expectations, this could lead to decreased sales and a decline in brand value. In addition, compliance violations by employees or the spread of inaccurate information on social media could damage the brand image and undermine trust from consumers and business partners.

In the course of its business activities, the Group handles customers' personal information and confidential information of other companies, and if information leakage occurs due to an unforeseen incident, this could result in significant liability for damages and a negative impact on brand image. There is also a risk that important business secrets could be unlawfully misappropriated by third parties, potentially leading to a loss of competitive advantage.

In the Industrial Products business, manufacturing facilities are large in scale and investment amount, and capital investment made from a long-term perspective may make it difficult to generate short-term cash flow, potentially resulting in impairment losses. In the Household Products business, in an environment with numerous competing products, market trading area changes and fluctuations in selling prices tend to occur, and impairment losses may arise due to a decline in profitability.

While the importance of highly specialized personnel in research and development, quality control, overseas business, and other areas is increasing, intensifying competition for talent in regional areas and the declining working-age population may make it difficult to secure and develop the necessary personnel. If recruitment, retention, and training do not proceed as planned, this may affect product development, production systems, and sales activities, and delays in responding to work-style reforms and diversity promotion could lead to the loss of talent and a decline in recruitment competitiveness.