SANDEN CORPORATION

There is a risk of lost sales opportunities and loss of business rights due to delayed response to strengthened fuel efficiency and emissions regulations and the shift to vehicle electrification. The Group has set targets of achieving zero Scope 2 emissions by 2030 and carbon neutrality by 2039, and is promoting the procurement and generation of green electricity while implementing climate-related information disclosure in line with the four TCFD elements. However, delays in responding to transition risks may adversely affect the Group's consolidated business results and financial condition.

There is a risk that profitability may be squeezed by an increase in new entrants to the Electric Compressor (for Car Air Conditioners) and Integrated Thermal Management System (ITMS) markets, improved quality competitiveness of local competitors, and stronger requests for price reductions from automakers. U.S. tariff policy and the strengthening of tariffs due to bloc economies could also affect the prices of final products. While the Group asserts its competitive advantage in quality, cost, and technology, there is no guarantee that it can always maintain such an advantage, raising concerns about the impact on business results and financial condition.

As the automotive industry rapidly transitions from internal combustion engine vehicles to new energy vehicles (NEVs), including electric vehicles (EVs), there is a risk that the Group may fail to keep pace with global market changes and customer needs, hindering the smooth development and market launch of new products. The Group is promoting research and development of next-generation ITMS, Electric Compressors, and other products, and has built a global collaboration framework combining advanced research in Japan with development sites around the world. However, if development delays occur, this could affect business results and financial condition.

The Group, which operates in 22 countries and regions, conducts transactions in multiple currencies, creating a risk that significant fluctuations in the U.S. dollar, euro, Chinese yuan, Asian currencies, and other currencies could directly impact asset values and profit or loss. While the Group addresses short-term fluctuations through hedging transactions and other measures, such measures alone may not be sufficient to avoid risk in the event of major exchange rate fluctuations.

There is a risk that manufacturing costs may increase due to significant rises in the prices of raw materials such as aluminum, copper, resin, and electronic components, as well as logistics costs. In addition, if China imposes export restrictions on rare earths or a global supply shortage occurs, this could disrupt stable product supply. The Group is working to diversify procurement risk through multiple sourcing and to appropriately pass on costs to customers through pricing, but it may not be able to fully respond to sudden changes in market conditions.

The Group, which operates globally across 22 countries/regions and 51 sites, is constantly exposed to country risks such as regulatory changes, shifts in political conditions, wars, labor disputes, and logistics disruptions in various countries. Geopolitical risks such as the Russia-Ukraine conflict, the Israel-Palestine conflict, and U.S.-China trade friction may also affect vehicle production by certain customers. Although the Group conducts monitoring based on its risk management regulations, if such risks materialize, they could affect business results and financial condition.

Although the Group develops and manufactures products in accordance with international quality management system standards for the automotive industry, there is a risk that if an unforeseeable product defect leads to a large-scale recall or product liability claims, this could result in substantial costs and a decline in sales due to reduced product trust. Although the Group has product liability insurance, there is no guarantee that all damages will be covered by insurance, which could adversely affect business results and financial condition.

The risk of information leaks, system outages, or suspension of critical operations is increasing due to increasingly sophisticated cyberattacks such as targeted attacks, business email fraud, unauthorized access, and ransomware. While the Group conducts annual training and regular inspections for all IT users based on its basic IT security policy, if the Group is subjected to an attack, this could damage its corporate image and social credibility and adversely affect its business and business results.

In each country and region where it operates, the Group is subject to laws and regulations such as licensing requirements, export restrictions, taxation, environmental regulations, and antitrust laws, creating a risk that the introduction of new regulations or violations of laws could constrain business activities. During the fiscal year under review, the Group responded to the enforcement of the revised Subcontracting Act (Act on Ensuring Fair Trading), and following a recommendation from the Japan Fair Trade Commission regarding the former Subcontracting Act, has been conducting ongoing training for officers and all employees. Responding to sustainability disclosure regulations such as Europe's CSRD is also a medium- to long-term challenge.

Amid trends such as the digital revolution, declining birthrate and aging population, and the promotion of ESG, competition to secure excellent human resources is intensifying, creating a risk that the retention, acquisition, development, and deployment of engineers, specialized personnel, and leaders responsible for global operations may not proceed as planned. The Group is working to prevent talent attrition and strengthen recruitment, but if it is unable to secure the necessary personnel, business activities could stagnate and affect operating results.