Kyosan Electric Manufacturing Co.,Ltd.

Sales of Railway Signaling Systems and road traffic systems tend to concentrate toward the fiscal year-end due to alignment with customers' annual budgets, resulting in a structural characteristic where revenue is weighted toward the second half of the fiscal year. In addition, business results may fluctuate from year to year depending on customers' capital expenditure plans and equipment replacement timing. While efforts are made to level out demand through delivery schedule adjustments, the revenue structure's reliance on individual projects inherently carries fluctuation risk.

Power Supply Units for Semiconductor Manufacturing Equipment and Power Supply Units for Flat Panel Display Manufacturing Equipment, the core products of the Power Electronics Business, are significantly affected by short-term and medium-to-long-term supply-demand cycles and the pace of technological innovation in each industry. Fluctuations in industry cycles may cause significant volatility in business results. The company aims to reduce this risk by strengthening its ability to respond to customer requirements and by developing high value-added products.

Railway Signaling Systems and road traffic systems are highly public products that support transportation infrastructure, and product defects that cannot be detected at the shipping inspection stage may occur due to factors such as parts used. In the event a defect occurs, the company swiftly implements countermeasures for the same model, such as inspecting all parts from the relevant production lot, to prevent the impact from spreading, but there are concerns about the effect on social credibility and financial position. The company strives to ensure quality through thorough design reviews and reliable shipping inspections.

For raw materials procured from multiple suppliers, increases in raw material prices and labor costs due to market changes may lead to product price increases or a decline in profit margins. In addition, shortages in the supply of raw materials may affect production processes. While the company strives to maintain stable business relationships through basic transaction agreements, vulnerability to changes in the external environment remains.

While actively pursuing global expansion with eight overseas locations, country risks—such as social, political, and economic conditions, exchange rates, taxation, intellectual property rights, laws and regulations, and business customs—differ by country and region. There are also concerns about the impact on business activities from the destabilization of international affairs and the occurrence or prolongation of regional conflicts. The company addresses these risks through cooperation with local specialized institutions and law firms, BCP development, and diversification of the supply chain.

Production activities are concentrated at the head office and factory in Yokohama City, Kanagawa Prefecture, creating a risk that operations could be suspended in the event of a large-scale earthquake or an eruption of Mt. Fuji, among other natural disasters. The head office employs a seismic isolation structure and the factory an earthquake-resistant structure, and the company has established business continuity systems including the installation of in-house power generation equipment, stockpiling of daily necessities, and the formulation of volcanic ash countermeasure plans. The company continues to regularly review and improve its BCP.

Although COVID-19 has already been reclassified as a Category V infectious disease, if a large-scale infectious disease outbreak were to occur again in the future, it could affect the business activities of the Company Group. To fulfill its supply responsibilities as a company even if affected by an infectious disease, the company is continuing to review and improve its BCP, and continues to implement measures to prevent the spread of infectious diseases in general.

While the company strives to comply with environmental laws and regulations both in Japan and overseas, if events or unforeseen circumstances arise in the future that make it extremely difficult to adapt to environmental regulations, this may result in increased environmental response costs or the suspension of business activities, potentially affecting business results and financial condition. Since fiscal 2022, the company has been identifying risks and opportunities based on the TCFD framework, positioning "Contribution to a Decarbonized Society" as a materiality issue and promoting appropriate information disclosure and response.

As business globalization progresses and telework becomes established, the risk of information-related incidents is increasing. In the event of an incident caused by cyberattacks, unauthorized access, computer viruses, or similar causes, the company could face compensation claims from customers, loss of business opportunities, and loss of social credibility, potentially threatening the company's continued existence. The company strives to reduce this risk through the establishment of an information security management system, strengthening of the information systems department, improvement of the IT environment, and thorough education of all employees and related parties.

The company recognizes a risk that incorrect accounting treatment under new accounting standards could affect financial results. While the company addresses this risk through case-based explanations by relevant personnel and double-checking of accounting treatments, the increasing complexity and frequent revision of accounting standards require ongoing response. Internal audit results from the Internal Audit Office are reported to the President, the Board of Directors, and the Board of Corporate Auditors, and risk information is shared within the group.