KANEFUSA CORPORATION

Overseas sales account for 53.7% of consolidated net sales, meaning that deterioration in economic conditions not only in Japan but also in countries where the Group operates has a direct impact on business performance. In particular, the strengthening of tariff policy in the United States could result in additional tariffs being imposed on products imported by the U.S. sales subsidiary from overseas, raising concerns about the impact on that subsidiary's performance. Rising energy prices and increased logistics costs stemming from geopolitical tensions in the Middle East are also heightening uncertainty in the global economy, and the Group is considering continuous monitoring of economic conditions and a review of its production system.

The Group's products are used across a wide range of industries, including wood processing, metal processing, and papermaking, with particularly high dependence on the housing-related and automotive-related industries. Fluctuations in the number of new housing starts in Japan and deterioration in production and sales trends in the global automotive industry could directly affect the Group's sales and business performance. The concentration of sales in specific industries is a risk factor, and diversifying demand across industries remains a challenge.

Steel and cemented carbide are among the Group's main raw materials, and the international supply of tungsten has continued to decline against the backdrop of tightened rare metal export restrictions by the Chinese government, leading to a sustained rise in import prices. Supply restrictions from suppliers and increases in procurement costs have occurred, and their impact on manufacturing costs and profitability is becoming apparent. The Group is working to diversify suppliers and pass on price increases to customers, but the risk of sudden sharp price increases cannot be completely eliminated.

As overseas transactions expand, fluctuations in exchange rates between the yen and the U.S. dollar, euro, and other currencies affect foreign-currency-denominated transactions and the valuation of assets and liabilities. With 9 consolidated subsidiaries overseas, the structure is such that translating foreign-currency-denominated financial statements into yen is also subject to the effects of exchange rate fluctuations. The Group takes risk mitigation measures such as forward exchange contracts, but in the event of abnormal exchange rate fluctuations, an impact on business performance and financial position cannot be avoided.

The Group operates in Indonesia, the United States, Europe, China, India, Brazil, Mexico, Vietnam, and other countries, and unforeseen events such as war, terrorism, riots, labor disputes, and changes in legal regulations could affect business performance. In addition, while the Group addresses transfer pricing taxation issues in transactions between group companies, there is also a risk of additional taxation arising from differences in interpretation with tax authorities. Changes in the political and social conditions of each country could directly affect business continuity.

Domestic production is concentrated at a single location, the head office plant in Oguchi-cho, Aichi Prefecture, creating a risk of significant damage in the event of a large-scale disaster such as a Tokai or Tonankai earthquake. The global spread of infectious diseases could also disrupt sales and production activities. The Group has established overseas production bases in Indonesia, China, and Vietnam to diversify risk, but a slowdown in business activities is unavoidable in the event of a large-scale disaster or global pandemic.

The Group stores and manages information on business partners, employees' personal information, and confidential management information, and responding to the recent increase in cyberattacks has become an important issue. The Group is working to reduce risk through the establishment of information security systems, internal training, and regulations, but in the event of an incident caused by a cyberattack, there is a possibility of incurring liability for damages and a decline in social credibility. There is also an inherent business continuity risk from system outages and similar events.

Securing diverse talent, including engineers, R&D personnel, management personnel, and digital talent, is essential for business continuity, but the decline in Japan's working-age population and the tightening of the market for hiring young talent are making it increasingly difficult to recruit and retain excellent personnel. At overseas sites as well, there is a risk of being unable to secure necessary personnel in a timely manner due to intensifying competition in local labor markets and rising compensation levels. If a shortage of human resources becomes apparent, it could lead to a rise in the turnover rate, a decline in productivity, and delays in business plans, which may affect competitiveness and financial condition.

Product quality problems may arise due to raw material defects, human or mechanical errors in the manufacturing process, or inadequate quality control at outsourcing partners, potentially resulting in significant impacts such as product recalls, compensation costs, and damage to brand value. As the Group expands globally, differences in laws, regulations, and litigation environments across countries also create a risk of unforeseen large-scale damages or litigation costs arising under product liability (PL) laws and similar regulations. The Group is implementing measures such as operating a quality management system, strengthening supplier audits, and improving traceability, but it is difficult to completely eliminate this risk.

If a workplace accident occurs due to the operation of machinery and equipment, handling of heavy objects, use of chemical substances, or similar causes at manufacturing sites, significant impacts such as production stoppages, compensation costs, and decline in social credibility could result. In recent years, addressing mental health issues has also become increasingly important, and if mental health problems arise due to long working hours, workplace interpersonal relationships, or uneven workload distribution, there is a risk of employee turnover, decreased productivity, costs related to workers' compensation claims, and damage to corporate image. The Group is advancing measures such as strengthening health and safety management, utilizing stress check systems, and collaborating with industrial physicians, but the risk of unforeseen events occurring cannot be completely eliminated.