TAKAMATSU MACHINERY CO., LTD.

The Machine Tools Business is heavily influenced by trends in private-sector capital investment, and in particular, capital investment trends in the automobile-related industry, which accounts for more than half of sales destinations, directly affect business performance. The IT-related Manufacturing Equipment Business experiences severe demand fluctuations due to the silicon cycle and crystal cycle, and the Automotive Parts Machining Business is also affected by the global contraction in automobile demand and intensifying competition. Since these multiple businesses are linked to economic cycles, an economic downturn could have a compounded adverse impact on business performance.

The machine tool industry is highly competitive, with numerous manufacturers competing against each other, and price competition intensifies due to excessive competition during periods of demand contraction. The Group seeks to differentiate itself by proposing automation systems tailored to user needs, but during periods of demand contraction, the effect of such differentiation may weaken, creating a risk of becoming embroiled in price competition. Intensifying price competition could adversely affect both net sales and profit margins.

Changing suppliers or switching to alternative products for certain raw materials and parts is difficult, and if a supply disruption or a shortage caused by a surge in demand occurs, production could be significantly affected. In addition, sharp or prolonged increases in raw material prices, driven by factors such as rising crude oil prices and economic growth in emerging countries, lead to higher manufacturing costs and put pressure on profits. The Group is working to reduce these risks by promoting dual sourcing and placing advance orders for long-lead-time items, but complete avoidance is difficult.

In the fiscal year under review, the ratio of overseas sales reached 32.7%, and in business operations in Asia, Europe, and North America, geopolitical risks such as changes in laws, regulations, and tax systems, labor disputes, terrorism, war, infectious diseases, and natural disasters could affect business performance. In addition, since export transactions are conducted mainly in yen, the direct impact on foreign exchange gains and losses is minor, but when the yen appreciates, local selling prices become relatively higher, creating a risk of reduced price competitiveness and pressure to lower prices. As the Group promotes measures to expand its overseas market share, exposure to these risks is expected to continue.

The Group's products are sold to users through dealers, and a deterioration in a dealer's business condition could delay or prevent the collection of receivables, affecting the Group's financial position. In addition, since dealers also handle competing products, if a major dealer prioritizes the handling of competing products or discontinues handling the Group's products, this could lead to a loss of sales opportunities. The Group holds a nationwide dealer conference every year to maintain relationships, but the risk of dealers changing their business policies cannot be completely eliminated.

Production sites for machine tools, automotive parts machining, and IT-related manufacturing equipment are concentrated in Hakusan City, Ishikawa Prefecture, and in the event of a large-scale natural disaster such as an earthquake or tsunami in this area, there is a risk that normal business activities could become difficult due to the suspension of head office functions or damage to facilities. Even without direct damage, delays in infrastructure recovery, restrictions on electricity use, and disruptions in supply from suppliers could significantly affect production. The Group is developing emergency response procedures and BCP measures, but the geographic concentration of production sites remains a structural risk factor.

In the course of its business activities, the Group holds confidential business information, customer information, personal information, and the like, and there is a possibility that cyberattacks, unauthorized access, computer virus infections, and the like exceeding expectations could result in the leakage, loss, or falsification of important information, or the suspension of information systems. The Group has taken measures such as establishing internal regulations, conducting internal training, and building information security systems, but complete protection cannot be guaranteed given the increasing sophistication of cyber threats. If an information leak or similar incident occurs, in addition to the impact on business activities, there are concerns about the incurrence of response costs and a decline in social credibility.

While the enhancement of human capital is essential for corporate growth and stable management, there is a risk that the Group may not be able to secure sufficient necessary personnel due to the recent emergence of labor shortages and intensifying competition in the new graduate recruitment market. The Group promotes the securing and development of personnel through regular new graduate recruitment, mid-career recruitment, on-the-job training, and external training, but if there is insufficient securing of desired personnel or a significant increase in the number of resignations, this could impede business performance and the execution of growth strategies.

Although the Group maintains thorough quality control under ISO9001 certification, zero defects cannot be guaranteed for all products, and unforeseen defects in new products could give rise to liability for damages under the Product Liability Act. Although the Group has product liability insurance, there is no guarantee that the full amount of damages would be covered, and while no lawsuits have occurred at this time, the occurrence of damages in the future could also lead to a decline in social reputation and corporate image.

Inventories are valued at the lower of acquisition cost or net realizable value, and the book value of slow-moving inventory is systematically written down according to the length of time it has remained in stock. Write-downs are carried out based on past sales, usage, and disposal records, but if a significant discrepancy arises between the actual status of slow-moving inventory and past records, additional valuation losses could occur, adversely affecting business performance. The risk of increased slow-moving inventory rises during periods of sharp demand decline in an economic downturn.