Canare Electric Co.,Ltd.

Products for the electrical construction industry and broadcasting equipment industry accounted for 68% of domestic sales in FY2025 (ending December 2025), meaning business performance is significantly affected by capital expenditure trends in these industries. In the event of industry-wide investment restraint or an economic downturn, there is a risk of a sharp decline in sales. The high dependence on specific industries constitutes a structural challenge that undermines earnings stability.

The overseas sales ratio reached 53% in FY2025 (ending December 2025), with sales offices deployed in the United States, South Korea, China, Taiwan, Germany, Singapore, India, and the Middle East. Changes in each country's approvals, tax systems, import/export regulations, and economic policies pose a risk of increased business continuity costs and greater difficulty in legal compliance. China in particular also serves as a production base (accounting for 7% of procurement in FY2025), so the impact of regulatory changes could extend to both sales and procurement.

Rising prices of key materials such as copper and brass directly lead to higher procurement costs for Cable products (35% of consolidated sales in FY2025 (ending December 2025)) and Connector products (13% of consolidated sales in the same period). While the Company makes maximum efforts to reduce costs, if these increases cannot be fully absorbed, they are passed on to product prices; however, delays or incomplete pass-through could compress profit margins. Since the affected product group accounts for roughly half of consolidated sales, the impact on business performance is significant.

With the overseas sales ratio reaching 53% in FY2025 (ending December 2025), exchange rate fluctuations have a significant impact on business performance. The Company hedges risk by adjusting the balance of foreign currency-denominated receivables and payables and utilizing forward exchange contracts, but it is explicitly stated that complete avoidance is difficult. In a yen appreciation phase, there is a risk that the yen-converted value of overseas sales will decline, directly pushing down earnings.

The outsourcing ratio for FY2025 (ending December 2025) stood at 61%, with more than half of production dependent on external contractors, creating a risk of temporary disruption to product supply if production problems occur at outsourcing partners. Insufficient supply chain diversification or alternative procurement arrangements could lead to delivery delays to customers and lost business opportunities. The high degree of outsourcing dependence also embeds structural vulnerabilities in quality control and production management.

Although the Company maintains a thorough quality control system, there is a risk of incurring substantial recall and compensation costs due to unexpected quality issues. While the Company has product liability insurance, it is explicitly stated that there is no guarantee that the full amount of any eventual damages will be covered. In the event of a large-scale quality incident, in addition to financial losses, there is a possibility of brand damage and customer attrition.

In FY2025 (ending December 2025), the Company allocated management resources equivalent to 4% of consolidated sales to research and development, working to strengthen future competitiveness. However, as R&D content becomes more sophisticated, there is a risk that the Company may not always be able to commercialize products matching market needs in a timely and continuous manner. If commercialization is delayed, competitors may seize market opportunities, potentially adversely affecting business performance.

Intellectual property rights such as patents, trademarks, utility models, and design rights may be involved in product development and sales, and it is explicitly stated that the risk of infringing third-party intellectual property rights cannot be denied. If infringement is found, litigation could result in restrictions on the production and sale of products, as well as the payment of damages. As the Company expands its business globally, differences in intellectual property systems across countries further complicate this risk.

Each business operation depends on computer systems and communication networks, creating a risk that system outages caused by disasters or other events could affect business execution. While the Company aims to shorten recovery time through backup of transaction data, there is no specific mention of measures against cyberattacks or large-scale disasters, leaving uncertainty about the comprehensiveness of countermeasures. If a system failure is prolonged, core operations such as order receipt, shipment, and billing could halt, potentially leading to loss of customer trust and lost sales opportunities.