HIRAKAWA HEWTECH CORP.

Rapid technological progress in fields such as information and communications, semiconductor manufacturing equipment, broadcasting, and medical care, as well as changes in customers' purchasing policies, may affect business performance. In response to product diversification and shortening product life cycles, the Company promotes market-oriented proposal-based sales integrating manufacturing, sales, and technology, but also faces intensifying price competition due to the rise of overseas products. The Company is addressing this by strengthening the division of labor between domestic and overseas operations (producing high-function products domestically and mass-produced products overseas).

The selling price of copper, a key raw material for wires, cables, and other products, is determined based on the copper price list reflecting London Metal Exchange market prices, and therefore inherently carries market price fluctuation risk. Raw materials for petrochemical products are also affected by price fluctuations. Sustained increases in market prices over the medium to long term may affect business performance and financial condition. For copper, the Company negotiates prices with multiple manufacturers at the end of each month and strives to manage costs by procuring at the lowest available price.

To reduce foreign exchange fluctuation risk related to foreign-currency-denominated transactions, the Company conducts hedging transactions within the scope of actual demand, but complete avoidance is difficult. In addition, the financial statements of overseas consolidated subsidiaries in China, Mexico, the Philippines, and elsewhere are prepared in local currencies, and exchange rate fluctuations at the time of yen conversion for consolidated financial statements may affect business performance. Foreign-currency-denominated receivables and payables, as well as import and export transactions, are also affected by exchange rate fluctuations.

The Company is subject to various legal regulations in Japan and overseas, including business licensing, antitrust, trade, tax, patent, and environmental regulations, and failure to comply with regulations or the imposition of new regulations may affect financial condition and business results. In particular, if inspection omissions occur for products subject to the Electrical Appliance and Material Safety Act, there is a risk of shipment suspension, recall (disposal) of the relevant products, and loss of customer trust, even if there are no quality issues. The Company addresses this by establishing operational manuals and conducting inspection work based on an annual plan.

The Company has multiple production sites in China, Mexico, the Philippines, and other locations, and changes to laws related to investment, finance, and import/export, as well as changes to tax systems such as corporate tax and value-added tax applicable to foreign-owned companies, may hinder production and business operations. Changes in the political and economic environment of each country carry the risk of directly affecting the Group's business performance. This is also linked to exchange rate fluctuation risk, raising concerns about impacts on foreign-currency-denominated receivables and payables as well as import and export transactions.

Operations may be suspended due to fires or power outages at production facilities, as well as natural disasters such as earthquakes, tsunamis, typhoons, and floods, or due to terrorism, war, or the spread of infectious diseases. If operations are suspended, business performance may be affected by delays in product delivery to customers, decreased sales, and the incurrence of repair costs. The Company conducts regular equipment inspections, but these risks cannot be completely prevented.

The Company manufactures products in accordance with domestic and overseas quality control standards, but there is no guarantee that all products will be free of defects in the future, and costs may arise from product liability claims or recalls. Although the Company maintains product liability insurance, there is no guarantee that it will fully cover the final amount of damages, and this may affect financial condition and business results. Product defects carry the risk of not only financial loss but also loss of customer trust.

As products become more precise, technology diversifies, and overseas business expands, unintentional infringement of third parties' intellectual property rights may result in sales injunctions or design change costs, affecting business performance. Conversely, if the Group is unable to completely prevent infringement of its own intellectual property rights by third parties, there is a risk that securing market share could become difficult. The Company strives to protect its technology and know-how by conducting patent searches during the product design stage and by obtaining patents, design rights, and other intellectual property rights.

The Company selects new fields expected to grow in the future and continuously invests human and physical resources to promote new product development, but there is no guarantee that it can continuously develop products that match market needs and generate added value commensurate with the resources invested. If development does not produce the expected results, business performance may be affected. Investment risk in new fields continues to exist alongside changes in the business portfolio.

There are transition risks arising from the introduction of policies and regulations such as greenhouse gas emission reductions, which may require additional countermeasure costs or significant revisions to business activities, as well as physical risks from an increase in natural disasters (particularly flooding of manufacturing sites due to river overflow). The Company conducts scenario analysis in line with TCFD guidance and expects the financial impact of transition risk to be limited, but as a response to physical risk, it is strengthening flood countermeasures for buildings and production facilities and formulating alternative production plans at other sites. The Company is also working to reduce carbon dioxide emissions through reductions in energy use and plastic waste.