HOCHIKI CORPORATION

The Group's business depends on domestic and overseas capital investment trends and construction market conditions. If demand declines due to economic fluctuations, reductions in public investment, or restraint in private-sector capital investment, this could affect operating results and financial position. In particular, in the domestic market, a slowdown in mid- to long-term market growth is anticipated due to sluggish demand for new installations resulting from the declining birthrate and aging population. In response, the Group is strengthening stock-type businesses such as Maintenance and renewal, and promoting diversification of its business portfolio by positioning overseas business as a growth driver.

The Group operates in multiple overseas regions, and geopolitical factors such as heightened international tensions, trade friction, economic sanctions, and conflicts could affect sales activities, the supply chain, and foreign exchange trends. In particular, changes in tariff policies and import/export regulations could lead to increased costs and supply delays. The Group seeks to minimize such impacts by strengthening information-sharing systems with each business location, diversifying procurement sources and logistics routes, and considering alternative production arrangements.

The Group is subject to the Fire Service Act and other domestic and overseas laws, regulations, and standards. Amendments to laws, changes in standards, or changes in interpretation may require changes to product specifications or additional investment. Differences in certification systems by country may delay market entry timing, and stricter labor regulations in the construction industry may also constrain construction capacity and order-taking activities. The Group addresses these risks by establishing response systems from the design and development stage and improving productivity through the use of DX.

The Group depends on external suppliers for parts and raw materials, and supply disruptions due to supply-demand tightness, price surges, disasters, accidents, or bankruptcies could affect production activities. If dependence on a single procurement source becomes apparent, this poses a risk of delays in product supply and increases in manufacturing costs. The Group is working to improve supply stability by promoting multiple sourcing and optimizing inventory levels.

If product defects or construction quality issues occur, this could lead to recall costs, damages, and reputational damage, potentially having a material impact on business performance and credibility. Given the nature of the business, which deals with social infrastructure such as Disaster Prevention and fire-fighting equipment, quality issues also carry risks related to human life. The Group strives to ensure quality through strengthening its quality control system, enhancing design review and process management, and centralized oversight by the PL Committee.

As dependence on IT systems and external services such as cloud services increases, there is a risk of information leakage or system outages due to cyberattacks, unauthorized access, internal misconduct, or system failures. Complete prevention is difficult given the diversification of attack methods and expanded use of external services, and if such incidents occur, they could affect operating results and financial position through damages, increased costs, service outages, and loss of credibility. The Group implements multi-layered measures, including multi-factor authentication, log monitoring, vulnerability management, and establishment of incident response systems.

Violations of the Fire Service Act, the Construction Business Act, the Antimonopoly Act, laws related to bribery of public officials, and other regulations could result in administrative sanctions, surcharges, damages, and loss of credibility. Given the business characteristic of significant involvement in public works projects, addressing risks related to bid rigging and bribery is particularly important. The Group is strengthening its compliance system through the establishment of group regulations, ongoing education and training, operation of an internal whistleblowing system, and risk-based internal audits.

With the expansion of foreign-currency-denominated transactions and overseas business, fluctuations in exchange rates could affect net sales, costs, and asset values. As the Group positions overseas business as a growth driver, exposure to foreign exchange risk may continue to expand going forward. The Group strives to mitigate the impact of exchange rate fluctuations through the use of hedging instruments such as forward exchange contracts.

With respect to cross-shareholdings and other holdings, fluctuations in stock prices or deterioration in the performance of investee companies could result in impairment losses or losses on sale, potentially affecting financial position. Holding cross-shareholdings may also pose a challenge from the perspective of capital efficiency. The Group manages this with an awareness of capital efficiency through periodic verification of the rationale for holding such shares and setting upper limits on holdings.

Retirement benefit obligations depend on actuarial assumptions such as the discount rate and expected rate of return on plan assets, and changes in these assumptions or deterioration in the investment environment could increase expenses and obligations. If changes in the interest rate environment or a downturn in the stock market occur, there is a risk that deteriorating pension asset performance combined with a lower discount rate could expand the financial burden. The Group strives to mitigate the financial impact through monitoring the investment status of pension assets, reviewing asset allocation, and optimizing plan design.