Foster Electric Company, Limited

US tariff policy, geopolitical risks (Middle East situation, Russia-Ukraine conflict), inflation, exchange rate fluctuations, and other factors could cause a sharp decline in demand, particularly in the automotive-related market on which the Company focuses, potentially resulting in reduced orders and excess inventory, which could have a material impact on business performance and financial condition. Rising labor costs in China, Vietnam, Myanmar, and other locations where production bases are located are also putting pressure on profitability. The Company addresses these risks by strengthening collaboration with customers to grasp demand trends, implementing timely production and inventory management including BCP considerations, and optimizing personnel through the promotion of automation.

There is a risk that transactions may decrease due to sluggish sales, management rationalization, unexpected contract changes or cancellations, or changes in procurement policy by ODM/OEM customers on which the Company has a high degree of transaction dependence. In addition, price reduction demands from customers with high dependence may put pressure on profitability. The Company addresses this by strengthening financial monitoring and credit management, marketing high-value-added products, and reducing dependence on top customers through review of the business portfolio.

The Company is affected by market fluctuations in iron, rare earths (neodymium, dysprosium), crude oil, copper, and other materials, and procurement prices for crude oil, petrochemical products, ferrite magnets, and other materials have already surged, particularly due to the impact of the US/Israel-Iran conflict. If procurement prices rise further sharply, this could have a material impact on business performance and financial condition. The Company addresses this by building up inventory through advance purchasing, passing on costs through pricing including the introduction of market-price-linked pricing mechanisms, and promoting in-house production of key components.

While the Company positions quality improvement of automotive-use products as fundamental to its management strategy, there are risks of failing to meet customer quality requirements, of major complaints or serious defects leading to recalls or product liability, and of finished product defects resulting from poor raw material quality. The Company addresses this by developing quality-focused human resources and fostering a quality-oriented organizational culture, building a system to transition from general automotive quality management to "more advanced quality management," and conducting quality improvement activities through global cross-functional teams.

The Company faces a wide range of regulatory risks, including legal revisions in various countries, security trade and export controls, direct tariff burdens and indirect impacts on demand trends from US tariff policy, and application of trade, antitrust, intellectual property, and environmental recycling-related regulations. The Company addresses this by optimizing its global sales composition, negotiating with customers on passing through tariff costs, flexibly relocating manufacturing bases and reviewing logistics, and conducting regular assessments based on its environmental management system.

With the promotion of DX, risks are increasing regarding system failures and business disruption due to cyberattacks and other causes, leakage of personal information and confidential information, and information security vulnerabilities across the entire supply chain. The Company addresses this by conducting network vulnerability testing by external organizations, strengthening security systems, conducting targeted phishing email training, and enhancing monitoring of the security posture across the entire supply chain.

The Company is exposed to multifaceted foreign exchange risks, including a decline in subsidiary performance and corporate value due to depreciation of local currencies at overseas locations, increased manufacturing costs due to appreciation of local currencies, translation losses due to imbalances in foreign-currency-denominated receivables and payables, and reduced gross profit on import inventory due to yen depreciation. The Company addresses this by monitoring exchange rates in each country and utilizing forward contracts and derivatives.

Due to the declining birthrate, aging population, and changes in the employment environment, there is a risk that the acquisition, retention, and development of desired human resources may not proceed as planned, along with risks of losing talented personnel to outside the Company and difficulty in technology succession, which could impede the realization of sustainable growth. The Company addresses this through the dissemination of Foster Rhythm (behavioral standards and values), work style reform and provision of diverse working arrangements, strengthening executive development and succession planning programs, and appointing global human resources.

There are risks of lost sales opportunities due to increased costs associated with the transition to a decarbonized society and damage to corporate brand, surging raw material costs due to abnormal weather, and disruption to product and service supply due to factory shutdowns or supply chain disruptions. The Company addresses this by strengthening countermeasures centered on the Sustainability Committee and Environment Committee, and confirming international requirements while appropriately reviewing and promoting environmental targets.

There are risks of misjudging market needs, falling behind market needs due to rapid technological change, and failing to match market needs due to delays in commercializing new technologies, all of which directly affect the Company's performance given that continuous development of valuable new products is positioned as a key management strategy. The Company addresses this by gathering information from customers and consumers and conducting proposal-based marketing, building a development structure for new technologies and new products including vibration actuators, and continuously investigating M&A candidates and pursuing industry-academia collaboration.