KUBOTA CORPORATION

Kubota conducts large-scale overseas operations in North America, Europe, Asia, and other regions, and faces a wide range of risks including changes in licensing and subsidy policies in each country, fluctuations in tariffs and import/export quotas due to international trade policy, geopolitical risks, and supply chain disruptions. Should these risks materialize, stable manufacturing and sales of products may become difficult, potentially leading to decreased sales and increased procurement and transportation costs. Unexpected outcomes in tax systems and transfer pricing negotiations in various countries could also materially affect business results.

Kubota has multiple manufacturing, sales, and financial subsidiaries overseas, and since local currency-denominated financial statements are translated into yen and reflected in the consolidated financial statements, a stronger yen environment negatively impacts business results. As risk mitigation measures, Kubota is shifting to optimal-location production and utilizing derivatives such as forward exchange contracts, but significant exchange rate fluctuations may exceed the effectiveness of these hedges and materially affect business results. The fact that many export transactions from the parent company to overseas subsidiaries and external customers are conducted in local currencies is also a factor expanding foreign exchange exposure.

Kubota procures many raw materials and parts from external suppliers and has built a global procurement network, but if sharp price increases due to supply-demand tightness or market fluctuations become prolonged, there is a risk of significantly reduced profits. Additionally, if difficulties arise in procuring raw materials and parts, manufacturing and sales of products may become difficult, potentially leading to decreased sales. With increased procurement at overseas production sites, the structure has become more susceptible to the effects of geopolitical risks and supply chain disruptions.

Since many Kubota products are production goods and capital goods, there is a risk that demand will decline and sales will decrease due to sluggish private capital investment, construction investment, domestic public investment, and other factors. Overseas, particularly in Europe and the United States, sales of small tractors and similar products are affected by general economic trends such as personal consumption and housing construction investment. In addition, changes in agricultural policy may directly affect sales of agriculture-related products.

Kubota faces risks of compromising the confidentiality, availability, and integrity of data and IT systems, and while it has established security systems and specialized teams to address these risks, if problems occur with IT systems or networks, this could result in loss of business opportunities due to interruption of business operations, liability for damages associated with leakage of internal information, infringement of intellectual property rights, and other issues. Furthermore, there is a risk that this could lead to a decline in social reputation and brand value, resulting in reduced product demand and decreased sales.

Kubota strives to maintain and improve quality through quality education, preventive activities, internal audits, and other measures, but if a significant non-conformance or defect occurs in the products or services provided, substantial compensation costs may arise. In addition, there is a risk that a decline in social reputation and brand value could lead to reduced product demand and decreased sales. The impact of quality issues could extend to a wide range of markets both domestically and internationally.

Kubota is required to respond to various environmental regulations related to its products and business activities, and if further tightening of regulations occurs, such as greenhouse gas emission regulations, exhaust gas regulations, and restrictions on the use of key materials, substantial cost burdens may arise. In addition, if environmental pollution or other environmental damage occurs, there is a risk of significant costs and expenditures for corrective measures as well as litigation risk. Kubota has established an environmental management system to respond to these issues, but unexpected changes in regulations could materially affect business results.

Kubota conducts business activities in Japan, North America, Europe, Asia, and other regions, and if unpredictable events occur such as natural disasters including earthquakes, tsunamis, floods, typhoons, and droughts, infectious disease outbreaks, wars, terrorism, information system outages, or power supply disruptions, there is a risk of damage to raw material procurement, manufacturing, logistics, and sales activities. In addition to the increasing global disaster risk due to global warming and climate change, Japan is one of the world's most earthquake-prone countries, and there is a risk of severe earthquake and tsunami damage. These factors could materially affect business results.

Kubota may continue to pursue partnerships, mergers, acquisitions, and similar initiatives with third parties in the future to seek new growth, but the success of such activities depends on the business environment, the capabilities of counterparties, and the degree of shared common goals. If such activities are not successful or if investment returns fall short of expectations, deteriorating profitability could materially affect business results. Given its global business expansion, Kubota also faces integration risks inherent in cross-border M&A.

Against the backdrop of growing social interest in human rights and the advancement of legislation related to human rights protection, particularly in Europe, if acts constituting human rights violations occur at Kubota or within its value chain (suppliers, outsourcing partners, etc.), there is a risk of facing social condemnation, boycotts, and penalties based on laws and regulations. Human rights due diligence across the entire supply chain is required, and if the response is inadequate, this could materially affect business results. Trends in human rights-related legislation in Europe are an area where further regulatory tightening is expected in the future.