HIRANO TECSEED Co,.Ltd.

The industrial machinery industry is significantly influenced by consumer sentiment and global economic trends, and social disruptions or sudden changes in market conditions may lead to cancellations of already-received orders, resulting in inventory valuation losses or bad debts. In particular, concerns exist that a slowdown in EV demand and policy shifts in the United States could lead customers to review their capital expenditure plans and create uncertainty regarding investment timing in the energy-related field, an area of focus for the Group. As countermeasures, the Group is expanding order-taking activities in regions and markets outside North America and strengthening its customer service framework, including modification, relocation, and parts supply.

Given the nature of industrial machinery products, which are used over periods ranging from several years to several decades, the succession of proprietary technology and the capability to develop new technologies in line with the times are essential. If tight labor market conditions hinder recruitment, development, or employment, or result in mass employee departures, business operations could be constrained. The Group addresses this by continuously recruiting personnel and actively developing human resources through on-the-job training and other training programs.

Steel and other materials account for approximately 60% of manufacturing costs, and various electrical components also depend on external procurement. As a result, sharp market changes causing raw material price spikes or extended delivery times for electrical components due to semiconductor shortages, among other factors, could disrupt production activities. If increases in procurement costs cannot be passed on to sales prices, this may adversely affect the Group's business results and financial position. As countermeasures, the Group monitors market trends in material prices and labor costs, arranges advance orders for related components, and secures multiple suppliers.

Employee retirement benefit expenses and obligations are calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension assets. If actual results differ from these assumptions or if the assumptions are revised, the impact on expenses will be recognized over future periods. The Group manages this risk through periodic actuarial recalculations and reviews of basic rates, as well as quantitative and qualitative evaluations conducted through regular exchanges of information with the entities entrusted with asset management.

The Group holds 182 patents; however, if third parties obtain patents or unrecognized patents exist, the Group may face claims for compensation, damages, or injunctions against product sales. There is also a risk of damages claims from product delivery destinations due to reasons such as inability to use products or differences in regional legal systems. The patent management department works with multiple patent firms to conduct regular checks on intellectual property and appropriately manage the patents held, thereby seeking to avoid such risks.

The head office plant is located in an area where local government authorities project flooding of less than 3m in the event of a major flood of the adjacent river. If operations are suspended due to natural disasters such as earthquakes or typhoons, or due to the spread of infectious diseases, delays in product supply to customers could significantly affect the Group's business results and financial position. In addition to implementing flood control measures, the Group is working to reduce this risk by operating the Kizugawa Plant (Kizugawa City, Kyoto Prefecture) as a second base of operations, taking business continuity planning (BCP) into consideration.

The U.S. subsidiary (Maintenance Services & Various Construction Work) established in March 2023 is newly established, and there is a risk that realizing investment returns may require a certain amount of time and funds, potentially making it difficult to develop the business and secure earnings as initially planned. There are also various risks arising from changes in the political, social, and economic environment of the host country. The Group strives to mitigate these risks through strengthened cooperation with the subsidiary and various specialists, as well as expediting management decision-making.

Because consolidated financial statements are prepared by translating the financial statements of overseas subsidiaries into yen, significant exchange rate fluctuations resulting from turmoil in financial markets could materially affect import/export transactions as well as the financial position and business results reflected in the consolidated financial statements. The Group is considering appropriate risk hedging measures, such as denominating a portion of transactions in yen and unifying the settlement currencies for purchases and sales, and aims to build a framework that enables prompt decision-making when such risks materialize.