NORITAKE CO.,LIMITED

The Group provides products and services to a wide range of fields including automobiles, steel, electronics, semiconductors, and hotels/restaurants, but demand trends in each industry are affected by economic conditions such as domestic and overseas business climate, capital investment, personal consumption, and market conditions. Although the Group has adopted a diversified business structure that is less susceptible to demand fluctuations in specific fields, an economic downturn could adversely affect its business performance and financial condition.

Approximately 45% of sales come from overseas markets, and the Group has a global business structure that includes overseas production. Business activities may be restricted due to political instability in various countries, economic uncertainty, unexpected changes in laws, regulations or tariffs, or troubles arising from differences in religion and culture, and business activities may be suspended in the event of war, civil unrest, terrorism, or similar events. The Group makes daily efforts to gather information and grasp the situation, but the risk of adverse effects on business performance and financial condition cannot be eliminated.

Based on the group-wide strategy of "selection and concentration," the Group concentrates management resources on growth industries such as electronics, semiconductors, and energy. However, because the pace of technological innovation is rapid and demand fluctuates significantly in these industries, there is a risk that developed technologies and products may become obsolete at an early stage. In addition to the obsolescence of core products and the loss of opportunities to launch new products in a timely manner, if patent infringement disputes arise or license/settlement costs are incurred, this could adversely affect business performance and financial condition. The Group takes measures such as acquiring intellectual property rights, but complete prevention is difficult.

As the Group's business is centered on ceramics manufacturing, soaring raw material and fuel prices are a factor in rising manufacturing costs. The Group addresses this through cost reduction activities such as improving productivity and cutting expenses, as well as price pass-through, but if excessive and rapid price increases occur due to demand fluctuations or the social conditions of supplying countries, they may not be absorbed by any of these methods, potentially adversely affecting business performance and financial condition.

The Group conducts exports across all businesses and imports some raw materials, and sharp fluctuations in foreign exchange rates significantly affect the export and import prices of products and raw materials. The Group seeks to hedge against short-term fluctuations through forward exchange contracts and other means, but the translation into yen of profits/losses and assets/liabilities denominated in local overseas currencies is also affected by the exchange rate at the time of translation, which could adversely affect business performance and financial condition.

The Group utilizes various information systems in its business operations and holds and manages important information assets such as sales, technical, and personal information. The Group takes technical, physical, and human measures such as strengthening cybersecurity measures, managing access privileges, and establishing backup systems, but it is difficult to completely prevent increasingly sophisticated external attacks and unforeseen events. If information systems are shut down or malfunction, or if information leaks occur, this could adversely affect business performance and financial condition due to business interruption, recovery costs, damages, and loss of social credibility.

Each business implements quality assurance measures based on prescribed quality standards, and the Group is working to strengthen the group-wide quality assurance system through its Quality Committee, but the possibility of unforeseen quality problems occurring in any product cannot be entirely ruled out. If a product defect occurs, losses such as damages that cannot be fully covered by product liability insurance and other means may arise, and this, together with a decline in social reputation, could adversely affect business performance and financial condition.

The Group has operating sites both in Japan and overseas, and seeks to diversify risk by establishing disaster management regulations and disaster response manuals, as well as by increasing its global production structure and the number of domestic production sites. However, if significant damage occurs due to disasters such as earthquakes or fires, or abnormal weather associated with climate change such as typhoons or heavy rain, production activities may be suspended for a considerable period, potentially adversely affecting business performance and financial condition.

In conducting business both domestically and overseas, the Group strives to comply with various laws and regulations by building a compliance framework and strengthening group governance, but if a significant legal violation occurs or laws and regulations are tightened or newly established, this could adversely affect business performance and financial condition due to restrictions on business activities or the incurrence of compliance costs. Similarly, in the event of an environmental pollution incident or the strengthening of environment-related laws and regulations, there is a risk of restrictions on business activities and increased costs.

The Group holds shares as investment securities, and if the fair value falls significantly below book value due to poor performance of investee companies or a deterioration in securities markets, it will be necessary to record a valuation loss. In addition, if profitability declines due to a significant deterioration in the business environment or other factors, impairment losses on fixed assets may occur, and financial assets and liabilities such as interest paid and interest received are also affected by interest rate fluctuations, which could adversely affect business performance and financial condition.