KVK CORPORATION

The Company procures parts from suppliers in the Asian region, and if delays occur in parts supply due to geopolitical risks or other factors, this could lead to production adjustments or suspensions at the head office plant. Although the Company has secured multiple procurement sources both domestically and overseas and has implemented BCP measures, there is a risk that operating results could deteriorate if backup production or procurement difficulties persist over the long term. A decline in sales due to a retreat in consumer sentiment could also have a similar impact.

For copper alloy, a key raw material, there are concerns about prolonged high prices due to increased demand for electric vehicles and China's economic recovery. Escalating tensions in the Middle East and developments in U.S. trade policy could also lead to a surge in crude oil prices and raw material shortages, and rising manufacturing costs could pose a risk of deteriorating operating results. The Company is addressing this through cost reductions via its integrated production system and timely, appropriate price pass-through.

Fierce price competition with other companies in the same industry continues in the faucet market, and it is not easy to pass on rising manufacturing costs due to fluctuations in exchange rates and raw material prices to selling prices. If the Company is unable to maintain product superiority and price competition intensifies, this could deteriorate operating results. As a specialized manufacturer that handles everything from planning, development, and production to sales and after-sales service in an integrated manner, the Company seeks to differentiate itself through problem-solving proposal-based sales.

Since the majority of operating revenue depends on domestic demand, if new construction and renovation demand fluctuates significantly due to deregulation of laws and systems, changes in housing policy, or interest rate trends, this could affect operating results and financial position. The structure is such that trends in the housing-related market directly impact business performance, resulting in high sensitivity to changes in the external environment.

If a water leakage defect occurs in faucet fittings, it could cause significant damage to customers' homes and household property. In the event of mass defects, recall costs, damages claims, and a decline in sales due to loss of trust could occur, posing a risk of deteriorating operating results. The Company addresses this through product liability insurance and the establishment of a quality management system, but this does not guarantee complete prevention.

The Company conducts business activities in China and the Philippines, and changes in laws, regulations, and tax systems, political and social unrest such as terrorism or civil strife, and unforeseen deterioration in economic conditions could worsen operating results and financial position. Accidents during overseas transport in intra-group transactions and delivery delays are also recognized as business risks.

Since the Company has subsidiaries in China and the Philippines, it bears foreign exchange rate fluctuation risk, and fluctuations in exchange rates could affect operating results and financial position. In particular, there is a risk that the yen-converted amount of profit or loss denominated in local currencies will fluctuate in yen depreciation or appreciation phases.

Plants are dispersed across Gifu Prefecture (Kamo District and Hida City), Dalian in China, and the Philippines, but the supply chain is concentrated in the Chubu region, and if a large-scale earthquake or other disaster occurs in this region, it could deteriorate operating results and financial position. The Company conducts regular disaster prevention inspections and formulates and trains for BCP plans, but there is no guarantee that the impact can be completely prevented or mitigated.

Gifu Prefecture, where the head office and domestic plants are located, has a declining population, and the proportion of the working-age population is lower than the national average, creating an environment in which securing human resources is difficult. If the Company becomes unable to secure the necessary personnel at appropriate cost in the future, this could significantly affect business operations. The Company is addressing this through the development of employee dormitories, enhancement of benefits, maintenance of appropriate wage levels, and enhancement of education systems.

If leakage exceeding standards for specified hazardous substances occurs or if there is inadequate response to stricter environmental regulations, this could result in the suspension of production operations due to administrative inspections or guidance, and the Company could bear legal liability for damages. This poses a risk of significantly damaging the corporate image and deteriorating operating results and financial position. The Company is working to comply with laws and regulations and reduce environmental burden through ISO14001 certification and the operation of an environmental management system.