Unozawa-gumi Iron Works, Limited

The Company supplies products to diverse regions including Japan, Asia, Europe, and the Americas, and is therefore affected by changes in economic conditions and fluctuations in capital expenditure demand in each country and region. In addition to overall economic trends, capital expenditure trends at individual companies affect demand for the Company's core products, pumps and blowers. As countermeasures, the Company is focusing on overseas markets and promoting project-based sales activities that are not concentrated in any specific region.

The order backlog for products at the end of the current fiscal year was ¥1,595 million, a decrease of ¥739 million from the same period of the previous year, making the securing of orders during the period a prerequisite for maintaining business performance. A decline in the order backlog may directly affect the financial position as a leading indicator of future net sales. The Company continues its efforts to secure orders based on new sales strategies.

Similar products and lower-priced products from domestic and overseas competitors are being introduced to the market, increasing pressure on the high-value-added strategy the Company has pursued as "Unozawa, the Vacuum Pump Specialist." If intensifying competition leads to declines in product prices or loss of order opportunities, both net sales and profit margins may be adversely affected. The Company aims to strengthen product competitiveness by expanding production capacity and increasing sales of high-value-added products.

The Company manufactures and sells a wide variety of Vacuum Pumps and Blowers, and profitability varies significantly by model. Inadequate profitability management may result in failure to secure the profit planned at the order stage, or even when sales targets are achieved, an imbalance in the model mix may cause profits to fall short of expectations. The Company focuses on highly profitable models as priority products and strives to secure profits through expanded production capacity.

Rising prices of castings, the Company's primary material, and the decreasing number of domestic casting suppliers may hinder stable procurement of raw materials. In addition, supply chain disruptions caused by geopolitical risks and other factors may affect the procurement of motors and electrical/electronic components. As a countermeasure, the Company is promoting diversification of procurement sources, including overseas suppliers.

In addition to soaring raw material and electricity costs, fluctuations in foreign exchange rates may affect business performance through increases in material procurement prices. As dependence on overseas markets increases, foreign exchange fluctuations affect both sales and costs. While the Company diversifies procurement sources to achieve a certain degree of risk distribution, no specific financial measures such as foreign exchange hedging are explicitly disclosed in the securities report.

For large-lot products for major customers and products for overseas users, the impact of unexpected defects can be significant, and the Company records a provision for product warranties to address this. For large and complex-specification products, there is also a possibility of penalties arising from inadequate delivery management. The Company aims to thoroughly reduce defects and manage delivery schedules by strengthening its quality assurance system, including ISO9001 certification, and by expanding production capacity.

With the increasing proportion of overseas users and the expansion of new business partners, inadequate credit management of sales counterparties may result in collection concerns or bad debts, potentially affecting business performance and financial position. In particular, country risk and counterparty credit risk increase in overseas transactions. As countermeasures, the Company sets credit limits for each business partner and reduces risk through means such as L/C settlement in overseas transactions.

Addressing the aging of employees, the succession of technical skills, expertise, and know-how, multi-skilling, and the acquisition and development of personnel for business expansion are challenges, and inadequate responses to these issues may affect business performance and financial position. While the Company has set forth the development of professional personnel as part of its vision, the succession of skills in manufacturing is also a structural challenge. The Company strives to secure and develop human resources through promoting new hiring and creating a rewarding workplace.

Natural disasters such as large-scale earthquakes, tsunamis, and typhoons may cause physical damage to factories and other facilities, harm to employees, and damage to customers, potentially having a material impact on business performance and financial position. As a manufacturer, the Company's high dependence on factory facilities means that the risk of operational shutdown directly affects sales and delivery schedules. The Company aims to reduce physical and monetary damage by establishing disaster response manuals and taking out property and casualty insurance.