ZUIKO CORPORATION

In hygiene product manufacturing machinery (Sanitary Napkin Manufacturing Machinery, diaper manufacturing machinery, etc.), which accounts for the majority of consolidated net sales, there is a risk that orders may decrease due to a decline in demand in the hygiene products market or restrained capital expenditure by customer manufacturers. In response, the Group is working to expand orders by developing and proposing new concept machines that capture global market needs, and to acquire new revenue areas beyond hygiene product manufacturing machinery.

As overseas sales account for approximately 80% of the total and the Group operates across a wide range of countries and regions, there are inherent risks such as unexpected changes in laws and regulations, political and economic turmoil, and exchange rate fluctuations. In response, the Group conducts country risk screening at the time of establishing overseas subsidiaries, maintains a regular reporting system based on the "Affiliated Company Management Regulations," and performs on-site audits of overseas locations by the Internal Audit Office.

In addition to the increase in the ratio of overseas sales, procurement of parts from overseas is also increasing, and there is a risk that a significant appreciation of the yen could lead to a decline in price competitiveness and a reduction in sales value for projects already received as orders. In addition, translation differences arising from converting the financial statements of overseas consolidated subsidiaries into yen also affect business results and financial condition. In response, the Group minimizes the range of fluctuation by utilizing forward exchange contracts, managing the performance of overseas subsidiaries on a local currency basis, and conducting transactions other than in local currency in U.S. dollars.

There is a risk that products already sold or to be sold in the future may infringe on third parties' intellectual property rights, or that the Group may be subject to damages litigation due to the establishment of patent rights, etc. of which the Group is unaware. In response, the Group seeks to protect its own technology through patent rights, etc., while the intellectual property department works together with lawyers and patent attorneys to prevent infringement of other companies' intellectual property rights.

In the course of its business activities, the Group holds customer information, personal information, and confidential business and technical information, and if an incident such as an information leak were to occur, there is a risk of legal liability being pursued, damage to reputation and credibility, and adverse effects on business results. In response, the Group has established a management system and handling rules to prevent unauthorized access, tampering, destruction, loss, etc., and implements reasonable technical measures.

Since material costs and outsourced processing costs account for a relatively high proportion of the cost structure, there is a risk that timing discrepancies in procurement due to domestic and overseas market trends may affect the delivery timing of machine products, and that market price fluctuations may directly impact profitability. In response, the Group is promoting securing inventory through early arrangement, investigating alternative materials and parts, and developing new procurement sources and outsourcing partners.

There is a risk that large-scale earthquakes, natural disasters associated with climate change, fires and accidents, man-made disasters such as terrorism, and the outbreak of infectious diseases could affect facilities and information systems and cause demand fluctuations due to deterioration of the economic environment. In response, the Group has formulated a business continuity plan (BCP), established an emergency contact network, and conducted evacuation drills, secured emergency power sources through solar power generation and storage batteries, and established an off-site data backup center.

If there is a significant deterioration in the business environment leading to a decline in business profitability or a significant drop in market prices, there is a risk that impairment losses may arise from the application of impairment accounting for fixed assets, affecting business results and financial condition. In response, the Group regularly monitors the operating status of fixed assets and cash flow conditions.

If the Group is unable to secure and develop appropriate human resources due to changes in employment conditions, or if the outflow of personnel continues, there is a risk that business operations will be hindered, affecting business results and financial condition. In response, the Group is working to strengthen recruitment of new graduates, including expanding internships and hiring highly specialized foreign nationals, and is enhancing engagement and reducing turnover through a mentorship system, clarification of career paths, and regular interviews.

In build-to-order production, which accounts for the majority of sales, there is a risk that changes in specifications after receiving orders, process delays, or rising construction costs could delay the timing of revenue recognition or cause estimated costs to be exceeded. Delays in shipment can also have a chain effect on the production schedule of subsequent products. In response, the Group is working on continuous improvement of schedule and cost management through advance testing of new development elements, standardization of common parts, and data utilization through its production management system.