Makita Corporation

Demand for power tools and gardening equipment is highly dependent on economic conditions such as housing starts, public investment, and personal consumption. If a global economic slowdown, sharp changes in crude oil and mineral resource prices, or stock market volatility adversely affect construction demand or consumption trends, revenue may decline and the ratio of selling, general and administrative expenses may rise, squeezing profits and potentially necessitating restructuring of production facilities and sales/distribution networks. In the event of a debt crisis in emerging countries, credit contraction and fiscal austerity leading to reduced public investment could pose a further risk of revenue decline.

Both the overseas revenue ratio and overseas production ratio exceed 80%, and fluctuations in exchange rates such as the euro, US dollar, and Chinese yuan significantly affect the yen-denominated amounts of profit and loss, assets, liabilities, and equity. While short-term fluctuations are addressed through forward foreign exchange contracts, medium- to long-term changes in exchange rate levels affect procurement, production, logistics, and sales activities. In particular, yen depreciation against the Chinese yuan increases the cost of importing materials and products from China, putting pressure on the financial position and business results. Sharp fluctuations in the currencies of various countries carry the risk of impacting business results beyond expectations.

Key management functions are concentrated in Aichi Prefecture, and the largest-scale production base is concentrated in Kunshan City, Jiangsu Province, China. If a massive earthquake in the Kanto, Tokai, Tonankai, or Nankai regions, or a severe disaster such as a flood, fire, or radioactive contamination occurs, it could have a material impact on business performance. Regarding the China base, in addition to natural disasters, risks also exist such as changes in the political and legal environment, changes in tariff rates, labor disputes, sharp increases in labor costs, new infectious diseases, and power shortages. If such events cannot be anticipated and the damage cannot be mitigated, this may adversely affect the financial position and business results.

The Group operates businesses in Japan, Europe, North America, Asia, Latin America, Oceania, the Middle East, and Africa, and is exposed to a complex set of risks including unfavorable political and economic factors, natural disasters, terrorism and war, changes in laws and regulations including protectionist trade policies, leakage of technical know-how, potentially unfavorable tax systems, and labor disputes. If these risks materialize, they may adversely affect the Group's financial position and business results. Responding to risks unique to each region is key to business continuity.

In the global professional power tools and gardening equipment markets, intense competition is unfolding based on product quality, price, speed of new technology adoption, brand image, and after-sales service, with new competing manufacturers continuing to emerge. In phases of sharp demand decline, such as a simultaneous global recession, competition may intensify further depending on the region, creating downward pressure on prices and potentially adversely affecting profits and cash flow. There is no guarantee that the Group will be able to effectively maintain competitiveness in the future, and loss of market share could have a material impact on profitability.

The Group procures raw materials and parts such as silicon steel sheets, aluminum, resin, steel, copper wire, and electronic components. In particular, certain electronic components are largely procured from emerging countries, making substitution difficult in the event of shortages and requiring time to respond to increased production. If material and parts prices surge due to fluctuations in component market conditions, exchange rates, or rising labor costs, and this reaches a level that cannot be absorbed through productivity improvements or price pass-through to products, it may adversely affect the financial position and business results. Production plans are highly dependent on materials and parts of the planned quality being delivered on the scheduled dates.

Within the supply chain, there is dependence on certain suppliers for which substitution with other suppliers is difficult. If a parts manufacturer's technology fails to meet required standards when launching a new product, this could lead to delays in the start of sales and lost sales opportunities. If such a supplier is unable to meet the planned quality, quantity, or delivery schedule due to natural disasters, new infectious diseases, regulations, deteriorating business conditions, or other reasons, this may affect production plans and adversely affect the financial position and business results. Since securing alternative sources of procurement is difficult, the impact when this risk materializes is significant.

The Group handles customers' personal information and confidential information over information networks at procurement, manufacturing, sales, and R&D sites around the world, and there is a risk that cyberattacks, unauthorized intrusions, natural disasters, or terrorism could result in information leaks or service disruptions. While the Group is advancing regular vulnerability assessments, centralized security monitoring systems, and strengthened incident response processes, complete protection is difficult, including against incidents occurring within the supply chain such as at business partners. If an information leak or similar incident occurs, legal liability, damages, and substantial countermeasure costs may arise, and this may adversely affect business results and financial position due to a decline in corporate trust and brand image.

The Group develops and manufactures power tools, gardening equipment, and other products in compliance with the safety standards of each country, but if an unexpected product defect leads to a large-scale recall or product liability litigation, costs not covered by insurance may arise. If trust in the brand declines significantly, this may adversely affect the financial position and business results. For the Group, which offers a wide variety of products globally, product quality control is a risk area that forms the foundation of business continuity.

The Group must comply with regulations related to the environment, commerce, import/export, taxation, safety standards, and other matters in all countries where it operates, and in recent years environmental regulations related to global warming and climate change have been strengthened worldwide. If the Group fails to comply with these regulations, is slow to respond, or incurs significantly increased compliance costs, this may adversely affect business results and financial position. Delays in regulatory response could also lead to damage to brand image.