NICHIRIN CO.,LTD.

More than 90% of the Group's sales are directed toward the automotive industry, and trends in the automotive industry, deterioration in the business performance of customer companies, changes in procurement policies, and the obsolescence of existing parts due to innovation in automotive technology directly affect operating results. Although the Group does not belong to any specific automaker group, its structure makes it susceptible to fluctuations across the industry as a whole. As countermeasures, the Group is working on new product development, exploring new businesses, and expanding its non-automotive product lineup, including in the housing equipment field.

The Group conducts production and sales activities in nine countries other than Japan, and unexpected changes in laws and regulations, the occurrence of unfavorable political and economic factors, and social disruption caused by war, terrorism, or epidemics could cause delays or suspensions in material procurement, production, sales, and transportation. These risks are wide-ranging, and if they materialize, they could have a material impact on operating results and financial condition. Along with global business expansion, management of country risk continues to be an important challenge.

The Group is subject to a wide range of laws and regulations in each country where it operates, including investment, trade, foreign exchange control, antitrust, and environmental protection regulations. If unfavorable outcomes arise from litigation or legal proceedings related to violations of laws and regulations, this could affect operating results and financial condition. The Group strives for legal compliance through thorough fair corporate conduct, but responding to regulations across multiple countries entails high complexity.

The prices of raw materials used in product manufacturing, such as synthetic rubber, reinforcing yarn, metal, and rubber parts, fluctuate significantly in line with international prices for crude oil and metals. Significant price increases push up manufacturing costs and could affect operating results and financial condition. As countermeasures, the Group works to reduce costs through production improvements and expense reductions, and implements cost reductions and pass-through to sales prices where possible.

Some parts and raw materials are sourced from specific suppliers due to considerations of quality, price, and delivery time, and deterioration in such suppliers' production systems, technological capabilities, or business condition could affect the Group's production. There is also a risk that parts and raw materials could become difficult to obtain due to international logistics issues. To mitigate this risk, the Group is gathering procurement information, examining countermeasures, and developing new, competitive suppliers.

The Group conducts production and sales at sites in North America, China, Asia, and Europe, and the proportion of overseas transactions is increasing. Since sales, expenses, and assets denominated in local currencies are translated into yen in the consolidated financial statements, fluctuations in exchange rates could affect operating results and financial condition. The Group utilizes hedging instruments such as forward exchange contracts to minimize this fluctuation risk.

If a defect in a product supplied by the Group is found to be the cause of a malfunction in an automobile, recall measures may be implemented, potentially resulting in contractual and legal cost burdens. The occurrence of substantial recall costs or a decline in customer satisfaction could damage the Group's corporate reputation and have a material impact on operating results and financial condition. The Group has established a structure in which the development, production, and quality assurance departments work together to share and discuss quality issues and pursue early resolution.

Many operations, including sales and production, depend on information systems, and if a system failure occurs due to a disaster or cyberattack, it could have a material impact on business activities. As countermeasures, the Group is improving availability through the use of cloud services, strengthening unauthorized access monitoring and anomaly detection through the introduction of EDR and SOC services, and establishing a system for rapid response to advanced cyberattacks through MDR services. Furthermore, the Group has formulated an IT-BCP (business continuity plan) to strengthen its business continuity structure in the event of a system failure.

If policies and regulations related to climate change become stricter than expected, this could result in increased costs and lost sales opportunities, affecting operating results and financial condition. In addition, if abnormal weather events such as typhoons and heavy rain, which have been increasing in recent years, or large-scale natural disasters occur, there is a risk that business activities could be restricted. The Group is working to mitigate this risk by complying with environmental regulations in each country and reducing environmental impact across the entire supply chain.

The Group's medium- to long-term growth requires the recruitment, retention, and development of excellent human resources necessary for business execution, and if this does not proceed as planned, it could affect operating results and financial condition. In particular, as global expansion accelerates, securing personnel capable of operating effectively in diverse markets has become an important challenge. As one of its overall strategies, the Group has set forth the securing and development of global talent, and is working to mitigate this risk.