PUNCH INDUSTRY CO., LTD.

China, where the Group has operated since 1990, is an important foundation for consolidated operating profit, but political instability, trade friction, anti-Japanese sentiment, eviction orders due to urban development policies, rising labor costs, and other factors could affect operating results. A fluctuation of ¥1 in the Chinese yuan would have an impact of approximately ¥1.3 billion on sales and approximately ¥90 million on operating profit. While the Group closely monitors political and economic conditions as well as laws and policies and has established a system for rapid response, given the current situation in China, it recognizes that although there is a possibility of this risk materializing, the impact would be limited.

In consolidated financial statements, local currencies of overseas group companies (Chinese yuan, US dollar, Indian rupee, Malaysian ringgit, etc.) are translated into Japanese yen, creating an inherent foreign exchange fluctuation risk, and foreign currency-denominated transactions are also increasing with the expansion of global operations. A fluctuation of ¥1 in the Chinese yuan would result in a translation impact of approximately ¥1.3 billion on sales and approximately ¥90 million on operating profit. The Group hedges through the matching of receivables and payables by transaction currency and forward foreign exchange contracts, while also working to build a business structure less susceptible to exchange rate fluctuations.

The Group holds a corresponding balance of interest-bearing debt due to expanded investment in production equipment and other assets, and changes in financial conditions or rising market interest rates could increase funding costs. The commitment line agreements with major financial institutions include financial covenants, and breach of these covenants could result in the loss of the benefit of term for borrowings of up to ¥2,400 million. The Group is working to generate internal funds through securing profits and reducing working capital, as well as diversifying funding sources, and conducts appropriate business operations to satisfy the conditions of the financial covenants.

The Group has over 10,000 customers in Japan and overseas, but the proportion of customers in the automotive-related, electronic components, semiconductor-related, home appliance, and precision equipment-related industries is high, and market conditions, price trends, and intensifying competition in these industries could affect production trends and capital investment trends, thereby impacting operating results. The magnitude of impact varies depending on the content and scale of risk materialization, and the likelihood of occurrence also varies depending on economic conditions and industry conditions, making it difficult to predict the degree of risk. Based on information gathering and analysis through day-to-day sales activities, the Group takes countermeasures, including changes to sales policy and production systems, when significant fluctuations are anticipated.

In the Mold Components Business, there is competition with other companies in the same industry in terms of technology, price, and delivery time, and if business strategies do not progress as planned or if competitors take unexpected actions, this could affect operating results. In addition, if the capital and business alliance concluded with one company in the same industry does not progress as planned, this could also affect operating results. The Group seeks to differentiate itself by improving customer convenience through web ordering and reducing manufacturing costs for standard products, and by strengthening its integrated production system and customer-focused sales approach for custom-order products.

In addition to factory operations in Malaysia and Vietnam, the Group is also engaged in business development in India, Europe, and the United States, and if the business environment changes significantly due to local political instability, tightening of regulations, changes in economic conditions, currency instability, or other factors, this could affect operating results. While the Group recognizes that the risks that may materialize and their impacts vary widely, considering the current conditions in the countries where overseas group companies are located, it judges that the likelihood of any of these risks materializing is low. The Group closely monitors political and economic conditions as well as laws and policies, and has established a system to respond promptly to any changes.

The Group operates its business based on sales management and production management systems, and if information leakage or system failure occurs due to natural disasters, hardware malfunctions, unauthorized network access, computer virus infection, or other causes, this could affect operating results. The risk of external attacks via communication networks is also increasing with the expansion of remote work. The Group seeks to reduce risk through the use of data centers, development of related regulations, strengthened monitoring of communication networks, and employee education and training, and recognizes that the likelihood of this risk materializing is low.

The Group holds numerous fixed assets, including production equipment, to meet the diverse needs of customers, and depending on the profit/loss and cash flow conditions at business sites and group companies, additional impairment losses may need to be recognized, which could affect operating results and financial position. At present, the Group has already implemented the necessary impairment treatment based on impairment accounting standards, and recognizes that the impact of this risk materializing would be limited. Going forward, the Group intends to continue monitoring changes in the business environment while working to secure orders and reduce costs.

The Group positions the recruitment and development of excellent human resources as an important issue, but if HR measures do not function effectively or if the Group is unable to secure the necessary personnel in a timely manner due to conditions in the labor market, this could affect operating results. The Group strives to secure stable human resources through optimizing work-life balance, promoting diversity management, and conducting appropriate recruitment activities based on recruitment plans, and considers the likelihood of this risk materializing to be low.

The Group has manufacturing and sales sites in Japan, China, Southeast Asia, India, and the United States, and if natural disasters such as earthquakes and typhoons, fires, war, terrorism, or infectious diseases occur, or if serious disruptions occur to electricity supply or communication infrastructure, this could affect operating results. It is not possible to avoid all of these risks, and predicting the amount of impact is also extremely difficult. The Group has established disaster response regulations and BCP guidelines, promotes the use of remote work and web conferencing, and thoroughly manages employee health, thereby establishing a system to minimize damage and enable early recovery.