Denyo Co.,Ltd.

Construction-related fields account for a large share of sales destinations for mainstay products such as portable generators, creating a risk that a slowdown in private- and public-sector investment due to economic deterioration in Japan and overseas could lead directly to a decline in demand. As a countermeasure, based on the medium-term management plan "Denyo2026," the Company is promoting revenue diversification into fields other than construction through expanded sales of stationary generators such as emergency generators.

Intensifying price competition with competitors could have a negative impact on operating results, and there are concerns that price competition in low-spec product categories is progressing particularly in developing countries. In addition to cost reduction through review of procurement and production systems, the Company is working to avoid price competition through rapid development of high-value-added products that capture the needs of each country's market.

Due to overseas business operations and product exports to countries around the world, the Company is affected by exchange rate fluctuations throughout the process from parts procurement to product sales, and its financial position is also affected through the yen conversion of the financial statements of overseas consolidated subsidiaries. The Company works to mitigate foreign exchange fluctuation risk through management of the balance of receivables and payables in foreign currency-denominated transactions, use of derivative transactions such as forward foreign exchange contracts, and unification of the currencies used for sales and purchases at overseas subsidiaries.

Metal materials widely used in products, such as steel plate, steel sheet, and copper wire, are constantly exposed to fluctuations in raw material market conditions, and a sharp rise in prices could have a negative impact on operating results through an increase in the cost-of-sales ratio. In addition to continuing rationalization investments and cost reduction activities at plants in Japan and overseas, the Company requests customers to accept product price pass-through for cost increases that cannot be absorbed through self-help efforts.

If parts supply is restricted due to changes in the external environment such as natural disasters, infectious diseases, war, or terrorism, or due to deterioration in suppliers' business conditions, there is a risk that production activities will be constrained, leading to lost sales opportunities. Regarding the escalating situation in the Middle East, it is difficult to definitively estimate the impact on operating results, and the Company is working to minimize the impact through diversification of procurement sources, delivery date management through close collaboration with suppliers, and investigation and adoption of alternative products.

Violations of regulations such as security trade controls could lead to substantial fines or restrictions on fund settlement, and protectionist trade policies such as the U.S. imposition of reciprocal tariffs could result in high tariffs being applied to products exported to the U.S. market and materials imported by the U.S. manufacturing subsidiary, potentially leading to a decline in price competitiveness. The Company works to reduce the impact on its business through in-house education and management system development to ensure compliance with laws and regulations in each country, information sharing with group companies and overseas distributors, and review of transaction formats and procurement methods.

Mainstay products such as engine generators are subject to emission gas regulations, noise regulations, safety regulations, and other regulations in Japan and overseas, creating a risk that sales activities for existing products could be restricted due to the enactment or revision of new regulations. Over the medium to long term, restrictions on fossil fuel use and a decline in demand are expected as part of climate change countermeasures, and the Company is working on the development and mass production of decarbonization and low-carbon technology products through deliberations at the Sustainability Promotion Committee.

Leakage of confidential information from business partners or confidential technical and business information could lead to a decline in social credibility, damages liability, and suspension of business transactions, while cyberattacks and virus infections that destroy or falsify important data or halt systems could impose significant constraints on sales and production activities. The Company has implemented countermeasures including formulation of an information security policy and development of a management system, distribution of an "Information Security Handbook" to all employees and viewing of educational videos, targeted attack email drills, introduction of anti-virus software and continuous monitoring tools, and implementation of system vulnerability assessments.

If a failure resulting from a defect in the design or manufacturing process causes damage to a customer, the Company will bear liability for damages, and over the medium to long term, this could lead to a decline in trust in its products, potentially having a negative impact on operating results. The Company prepares for loss risk through strict quality control based on ISO9001 certification, establishment of a system for cause investigation and recurrence prevention by the quality control department when market claims occur, and enrollment in product liability insurance covering markets in Japan and overseas.

Due to factors such as the declining birthrate and aging population, it may become difficult to pass on the skills currently possessed by service staff to the next generation, and if service capabilities decline in the future, it may become difficult to provide sufficient after-sales service to customers and users, potentially having a negative impact on operating results. The Company works to maintain its service system through continuous monitoring of each service plant, regular technical education based on a qualification system, and infrastructure development such as business system development and the establishment of new service locations for handling repairs of large equipment.