OGURA CLUTCH CO.,LTD.

There is a risk that shipment volumes of key products may decline due to domestic and overseas economic trends. There are also concerns about spillover effects on customers in Europe and other regions due to geopolitical factors such as the situation in Russia and Ukraine. Multifaceted adverse effects on operating results and financial condition are anticipated, including declines in product unit prices due to significant deflation and increases in borrowing interest expenses due to significant inflation.

The overseas sales ratio for the current fiscal year was as high as 52.2%, meaning the Group's structure is significantly affected by exchange rate fluctuations. Although hedging measures such as forward exchange contracts are implemented, it is impossible to completely avoid the impact, which may adversely affect operating results and financial condition. The weight of overseas operations is expected to continue increasing going forward, requiring ongoing risk management.

Parts manufacturers are strengthening competitiveness through cost reduction, globalization, and business restructuring, intensifying price competition. The Group is responding by building production systems at major global sites and pursuing higher value-added products, but there is a risk of losing price competitiveness due to groundbreaking cost reduction measures or aggressive pricing policies by competitors. Should this occur, it would adversely affect operating results and financial condition.

Prices of key raw materials fluctuate depending on market conditions, and a surge in prices would lead to an increase in cost of sales. If the increased costs cannot be passed on to product prices, profitability may decline, adversely affecting operating results and financial condition. A high degree of dependence on specific raw materials increases the impact of procurement cost fluctuations.

The Group manufactures products in accordance with global quality control standards, but there is no guarantee that all products are free of defects or that claims will not arise in the future. If substantial claim compensation costs are incurred, this may adversely affect operating results and financial condition. Quality problems could also lead to a loss of customer trust.

The Group's net sales have continued to show a high degree of dependence on electromagnetic clutches. If electromagnetic clutches become obsolete due to unforeseeable technological innovation, and the Group fails to transition to alternative products or businesses in time, this could have a material adverse effect on operating results and financial condition. Concentration on specific products is a risk factor for the stability of earnings.

The Group is subject to a variety of laws and regulations in each country where it operates, including import/export controls, tariffs, trade regulations, patents, taxation, and environmental recycling requirements. Amendments to these laws and regulations may restrict business activities and lead to increased costs. Export restrictions imposed for national security reasons, among other factors, may also adversely affect operating results and financial condition.

If manufacturing and sales sites are damaged by natural disasters caused by earthquakes or climate change, or by a pandemic of a highly virulent infectious disease, production stoppages, delivery delays, and other disruptions could occur, adversely affecting operating results and financial condition. Even if the Group itself is not directly affected, there is also a risk that damage to customers or business partners could disrupt production, logistics, and sales plans.

As the Group operates globally, it is exposed to increasing geopolitical risks arising from changes in the international situation and heightened political or military tensions. This could have a material impact on production and sales activities through delays in the procurement of raw materials and parts, cost increases, disruptions to logistics, and import/export restrictions or economic sanctions. The situation in Russia and Ukraine is cited as a specific example of such risks materializing.