Advanex Inc.

As the Company supplies precision metal processed products globally for automotive, OA equipment, medical, and precision equipment applications, an economic downturn or demand contraction in major markets could have a significant impact on operating results and financial position. Due to rising crude oil prices and heightened geopolitical risk stemming from the worsening situation in the Middle East, the outlook remains uncertain going into FY2026 (ending March 2026). The Group recognizes this as a risk factor and continues to monitor the situation.

Changes in tariff rates in major countries may affect business performance. The U.S. "Trump tariffs" that began in 2025 had a significant impact on exports to the U.S. and on the import of materials by the Company's U.S. plant. In FY2027 (ending March 2027), U.S. tariff policy will continue to be a factor depressing earnings, but its impact has already been incorporated into the earnings forecast. The Company continues to closely monitor developments in tariff policy and consider countermeasures.

Since the Company's business is centered on local production for local consumption, foreign exchange risk in the commercial transaction flow is relatively low. However, the Company bears foreign exchange fluctuation risk on the asset side due to substantial investments associated with the establishment of new plants in Mexico, Indonesia, India, and the Czech Republic. In FY2026 (ending March 2026), the Company is concerned about the risk of foreign exchange losses arising from a reversal of the yen's depreciation. The Company is pursuing risk hedging through stabilizing the operations of overseas subsidiaries, shifting to local fund procurement, and early recovery of the parent company's investment assets.

There is a risk of price surges or shortages of raw materials such as metal and plastic materials due to market changes, as well as a risk of supply disruption due to accidents or disasters. Although the Company has entered into contracts with major customers to link selling prices to raw material prices, negotiations on some contracts have been difficult, and a time lag exists before prices are reflected, meaning risk hedging is not complete. As most of the raw materials used are general-purpose materials that can be substituted, the Company is able to avoid risk by changing material suppliers.

As most of the Company's production activities depend on electricity, rising electricity rates due to yen depreciation, inflation, and surging energy costs put pressure on profitability. Rising labor and transportation costs are similar risk factors, and in the Company's major markets of automotive and OA equipment, it has historically been difficult to pass on cost increases through price increases. Against the backdrop of guidance from the Japan Fair Trade Commission, price pass-through is gradually being accepted through individual negotiations with customers.

For automotive-related products, which account for more than half of net sales, if a defect caused by the Company's products occurs, the Company may be charged recall response costs by the customer. In response, the Company is aiming to establish "manufacturing processes in which quality problems cannot occur" through obtaining and properly operating IATF16949 (a quality management system standard for the automotive industry) and introducing automated quality inspection equipment. The Company is also working to mitigate risk by carefully negotiating delivery specifications with customers.

For products for which the Company holds intellectual property rights, such as Tangless Insert and Lock One, the distribution of similar counterfeit products bearing improperly used trademarks has been confirmed in some emerging countries. The distribution of counterfeit goods not only results in lost business opportunities but also poses a risk of damaging the Company's reputation due to poor quality. The Company works to mitigate this risk by alerting customers and introducing them to authorized distributors.

The Company holds numerous fixed assets, including tangible fixed assets and software, at its five domestic and fifteen overseas production sites. If profitability declines from initial plans due to changes in the business environment, the Company may need to recognize an impairment loss. In particular, the Company has been actively investing in new plants in Mexico, Indonesia, India, and the Czech Republic in recent years, and there is concern about the adverse impact on business performance and financial position should the recovery of these investment amounts become unlikely. The Company strives for early identification of risk through progress management of the business plans at each site.

As the importance of information systems in business activities increases, there is a possibility that cyberattacks or unauthorized access exceeding expectations could cause the core information systems to stop functioning or lead to the leakage of confidential information. Although the Company has implemented security measures to protect information assets and ensure stable supply, complete defense is difficult given the increasing sophistication of threats. The Company aims to reduce risk through the continuous implementation of enhanced security measures.

With global expansion, risks specific to the regions in which the Company operates are anticipated, such as sharp increases in minimum wages, demonstrations, terrorism, natural disasters, the spread of infectious diseases, and changes in tax regulations. In particular, exposure to such risks is increasing due to the Company's expanded presence in emerging and growth markets such as Mexico, Indonesia, India, and the Czech Republic. The Company maintains close information sharing with each overseas subsidiary and has established a system that enables early management decisions by analyzing local conditions and local government policies.