HOSOKAWA MICRON CORPORATION

Demand for the Group's products extends across countries worldwide, and if instability in the political and diplomatic situation in destination markets, trade friction, trade wars, or demand fluctuations associated with economic downturns occur beyond forecasts, this could affect the Group's financial position and operating results. Because the Group operates globally, it inherently carries the risk that economic deterioration in a specific region could spread to overall sales.

The consolidated financial statements are presented in Japanese yen, and the Group is exposed to both translation risk and transaction risk arising from fluctuations in foreign exchange rates such as the US dollar, euro, and British pound. Fluctuations in exchange rates directly affect the selling prices of products denominated in foreign currencies and the prices of procured materials, thereby influencing profitability. No specific foreign exchange hedging instruments are described, resulting in high structural sensitivity to rate fluctuations.

The Group conducts production and sales activities in the Americas, Europe, Asia, the Middle East, Africa, and other regions, and is exposed to a wide range of risks including political and economic factors, changes in laws and regulations, the effects of tariffs and transfer pricing taxation, labor disputes, and terrorism and armed conflict. Activities may also be restricted by the introduction of stricter regulations in each country or by changes in the interpretation and operational guidelines of laws by authorities. The materialization of these risks could affect the Group's financial position and operating results.

Although the Group determines delivery specifications based on agreements with customers and implements strict quality control at each plant, product liability risks not covered by product liability insurance could result in substantial costs. If damages exceeding the insurance coverage arise or if brand image is damaged, this could have a material effect on the Group's financial position and operating results.

The Group continuously develops new technologies in anticipation of future customer needs, but there is a risk that new technologies may not be accepted in the market due to changes in the social environment and customer needs that exceed forecasts. In addition, some new technologies require regulatory approval, and if such approval is not obtained, the launch of new products and services may be delayed, reducing competitive advantage relative to competitors and new market entrants.

The Group has established the "Hosokawa Micron Group Compliance Charter" and domestic and overseas compliance regulations, and strives to raise awareness among all officers and employees; however, if a violation of laws or regulations occurs, the Group may be subject to administrative sanctions such as business suspension orders or fines. Although provisions have been recorded for litigation related to product warranties, if the outcome differs from the Group's assertions and expectations, substantial compensation costs could arise, affecting the Group's financial position and operating results.

The Group possesses advanced technology and know-how that differentiate its products from those of competitors and makes every effort to protect them; however, in certain regions, complete protection through intellectual property rights is difficult, and it may not be possible to prevent third parties from manufacturing similar products. At the same time, there is a risk that the technology and know-how used by the Group could infringe on the intellectual property rights of other companies, leading to disputes, which could result in the loss of competitive advantage and the incurrence of litigation costs.

The Group manages various information, including personal information necessary for business operations, through information systems, and has implemented measures such as stable operation, security countermeasures, appropriate server management, and information backup. However, if information leakage, destruction or falsification of important data, or system shutdown occurs due to cyberattacks, unauthorized access, or computer virus intrusion exceeding expectations, this could damage the Group's credibility and affect its financial position and operating results.

Although the Group is diversifying its sources of procurement and promoting domestic and regional procurement, stable procurement of raw materials and parts may become difficult in the short term due to the bankruptcy or closure of suppliers, large-scale disasters, or the spread of global infectious diseases. In addition, if procurement prices surge due to sudden changes in supply-demand conditions or prolonged supply tightness causing sharp increases in material and energy prices, and price pass-through cannot keep pace, this could adversely affect profitability.

The Group has begun efforts to comply with environmental regulations and related laws aimed at realizing a low-carbon society and to mitigate climate change, but temporary cost increases may arise in order to comply with such regulations. If the Group's response is difficult, insufficient, or delayed, this could result in restrictions on business activities and adverse effects on its financial position and operating results. Given the nature of its business centered on powder technology, addressing energy consumption and emission regulations in manufacturing processes remains an ongoing challenge.