Kitagawa Corporation

Because the Group has production and sales bases overseas and has built an international supply chain, conflicts, terrorism, political instability, trade friction, economic sanctions, changes to tariff and customs systems, the spread of infectious diseases, and similar events may cause constraints or delays at each stage of procurement, production, sales, logistics, and settlement. Prolonged procurement lead times, cost increases, changes to production plans, shipment and delivery delays, and demand fluctuations could affect business results and financial position. The Group is advancing information gathering and diversified procurement, but the impact may not always be fully avoidable.

The Group continuously procures raw materials necessary for manufacturing products and consumes substantial amounts of energy such as electricity in processes including casting and machining. Increases in raw material and energy prices, as well as outsourced processing and logistics costs, push up manufacturing costs and act as a factor in reducing profit margins. In periods of sharp price fluctuation, delays in passing costs through to selling prices may occur, potentially causing temporary or continuing deterioration in profitability. The Group is pursuing diversification of suppliers, cost reduction, and price revisions, but the impact may persist if elevated prices continue over an extended period.

Foreign-currency-denominated sales, purchases, and expenses arise from overseas procurement, production, and sales activities, and fluctuations in exchange rates may affect consolidated business results and net assets through changes in the yen-equivalent amount of foreign-currency transactions and through translation of overseas subsidiaries' financial statements into yen. The Group works to mitigate the impact through hedges such as forward exchange contracts and holding foreign-currency-denominated liabilities corresponding to receivables, but the impact may not be avoidable in the event of sharp fluctuations.

If the Group is unable to sufficiently secure and retain the necessary human resources due to the declining birthrate, an aging population, and intensifying competition for talent, this could result in lower operating rates, deterioration in quality and productivity, delays in development, and stagnation in the transfer of skills, potentially leading to a decline in competitiveness. The Group is promoting stronger recruitment, employee training, systematization of skills transfer, improvements to treatment and working conditions, and multi-skilling and automation, but if these measures fail to achieve the expected results, this could have a material impact on business operations.

The Group holds important information assets such as product design information, manufacturing information, and know-how, and the sophistication of business systems and the networking of production equipment have heightened the risk of cyberattacks, unauthorized access, internal misconduct, and intrusion via business partners. If such incidents occur, information leaks, data tampering, business or operational suspension, delivery delays, increased recovery costs, damages claims, regulatory response, and loss of credibility could have a material impact on business results and financial position. The Group is advancing measures such as establishing rules and structures, access control, monitoring and vulnerability management, and training and backups, but damage may not be entirely preventable given the increasing sophistication of attack methods.

In the markets in which the Group operates, demands for higher productivity, automation, greater precision, energy conservation, and digitalization are becoming more sophisticated. If the Group fails to respond appropriately to changes in customer needs and technology trends, this could result in reduced product competitiveness, lost order opportunities, and lower profit margins due to price competition. Research and development investment carries risks of technological uncertainty and extended development periods, and if expected results are not achieved, this could affect future growth potential and the recovery of investment. The Group is working to strengthen its competitiveness through product development starting from customer challenges, improvements in quality and performance, and use of external partnerships, but the impact may not be avoidable in the event of sudden changes in the market environment.

As the Group expands overseas and broadens its supply chain, there is a risk of leakage of confidential information, distribution of counterfeit or imitation products, and technology leakage. In addition, as the Group expands its business areas and advances its products, there is a possibility that it may infringe on third parties' intellectual property rights or be subject to claims of infringement. If disputes arise, business activities could be constrained by damages claims, sales injunctions, design changes, royalty burdens, and litigation costs, potentially affecting business results and financial position. The Group is taking measures such as securing and maintaining intellectual property rights, managing confidential information, contract management, verification procedures to prevent infringement, and countermeasures against counterfeit products, but complete prevention is difficult.

Due to the increasing sophistication and diversification of products, responses to individual specifications, and diversification of the supply chain, it is difficult to completely eliminate the risk of product defects. If a serious defect occurs, quality costs such as compensation, repair, replacement, and recall, damages claims based on product liability, lost business opportunities, and loss of credibility could have a material impact on business results and financial position. The Group strives to improve quality through process control, inspection systems, supplier management, traceability, corrective actions, and establishment of after-sales service systems, but unexpected recalls or unforeseen events may occur.

If the Group's facilities, suppliers, or logistics networks are damaged by the intensification of natural disasters such as heavy rain, floods, typhoons, and earthquakes, this could have a material impact on business results and financial position through operational suspension, supply delays, and recovery costs. Furthermore, if the Group's response is insufficient amid increasing requests from business partners regarding environmental considerations, this could lead to changes in trading terms or a reduction in order opportunities. The Group works to reduce the impact through disaster drills, disaster preparedness measures, and energy conservation, but the impact may not be avoidable depending on the scale of the disaster or the content of regulatory changes.

As the Group operates businesses both domestically and internationally, it is subject to various laws and regulations, and amendments to or stricter enforcement of these could result in additional costs or constraints on business operations. If a violation of laws and regulations, or suspicion thereof, occurs, this could have a material impact on business results and financial position through administrative sanctions, fines and penalties, litigation, suspension of business dealings, and loss of social credibility. The Group works to ensure thorough compliance through establishing internal rules, education and training, internal reporting systems, internal reviews, and internal audits, but complete prevention is difficult given the limitations of controls, including at overseas subsidiaries and outsourcing partners.