FURUNO ELECTRIC CO., LTD.

In the Marine Equipment Business, which accounts for 85.6% of consolidated net sales, factors such as shrinking demand for fisheries due to the advancement of managed fisheries, deterioration in merchant vessel supply-demand balance, and contraction of the pleasure boat market due to economic deterioration in Europe and the U.S. may have a material impact on business performance. In addition, failure to respond to major industry-wide technological shifts such as autonomous navigation poses a risk of materially affecting business performance and financial condition. As countermeasures, the Group has set forth policies to improve profitability in service operations, pursue new business fields, promote marine equipment DX, and expand the Industrial Business.

Heightened geopolitical risk arising from the prolonged U.S.-China trade friction and the situation in Ukraine may lead to tariff increases and restrictions on product supply and technology transfer, particularly related to security and human rights, which could restrict production, logistics, and sales activities. The Group supplies products across diverse regions including Japan, Asia, Europe, and the Americas, and any disruption to product supply to customers would adversely affect business performance and financial condition. As a countermeasure, the Group has established a security trade control system headed by the Representative Director and President as the chief officer, and implements global monitoring and supply chain reviews.

Overseas sales accounted for a high proportion of consolidated net sales at 70.3% in the fiscal year under review, and fluctuations in exchange rates may adversely affect business performance and financial condition. Since overseas sales are primarily conducted through overseas subsidiaries and distributors, the structure is prone to erosion of sales and profits during periods of yen appreciation. As a countermeasure, the Group identifies and manages foreign exchange risk based on internal regulations and implements appropriate hedging transactions, with a basic policy of not engaging in speculative transactions.

If natural disasters, accidents, or other events significantly impact the supply chain, or if deterioration in suppliers' business conditions leads to restricted parts supply or discontinuation of manufacturing, or if supply is restricted due to increased demand, this may adversely affect business performance and financial condition through production delays and impacts on product sales. There are also concerns about the risk of rising product costs due to significant price fluctuations in raw materials and parts, as well as impacts on procurement and sales due to inadequate CSR compliance by suppliers. As countermeasures, the Group implements centralized management of supplier location information, periodic evaluation of business risk by third-party organizations, and awareness activities for suppliers regarding GHG emission reductions, among others.

External cyberattacks or internal negligence, theft, and other incidents may result in the leakage, destruction, or falsification of important business information, personal information, or confidential information of business partners, or in the suspension of information systems. Should such an event occur, it may adversely affect business performance and financial condition through loss of credibility, costs such as damages, and business suspension. As countermeasures, the Group has obtained ISO27001 certification, implements technical measures against increasingly sophisticated cyberattacks, and conducts continuous monitoring and incident response through its CSIRT framework.

If quality defects (including the presence of regulated substances) or recalls occur, this may result in costs such as recall expenses and damages, as well as decreased sales, and in severe cases, could threaten the survival of the company due to loss of brand credibility. Cybersecurity vulnerabilities in products and systems are also recognized as part of quality risk. As countermeasures, the Group has built a quality system certified to ISO9001, taken out product liability insurance, and established a basic policy on cybersecurity for products and systems, among other measures.

The head office, R&D facilities, and main factories are concentrated in the southern part of Hyogo Prefecture, and if a large-scale disaster such as a major earthquake, typhoon, or flood, or an infectious disease outbreak occurs, this may seriously impede business continuity and adversely affect business performance and financial condition. The Group faces a geographically concentrated risk of particular concern with respect to risks such as a Nankai Trough megaquake. As countermeasures, the Group has formulated a BCP, conducts regular disaster prevention drills, has built a safety confirmation system, and is pursuing medium- to long-term measures such as relocating offices to elevated or inland areas.

Future growth and development depend heavily on securing excellent human resources in fields such as science, technology, and management, but competition for talent is intensifying year by year, and difficulty in securing such talent may adversely affect business performance and financial condition. With business expansion and globalization progressing, the development and securing of autonomous and globally-minded talent has become a particularly important challenge. As countermeasures, the Group has built a fair evaluation and treatment system based on management by objectives, expanded educational programs, and improved work arrangements and the working environment, among other measures.

If price competition intensifies due to the emergence of new competitors or the introduction of low-priced products by competitors in each product market, this may adversely affect business performance and financial condition. In particular, there is a risk that changes in the competitive environment in the marine electronics equipment market may affect profitability. As countermeasures, the Group continues to pursue cost reductions related to inventory, quality, production, and development, and is working to develop and expand sales of high-value-added products utilizing IoT.

Violations of various domestic and overseas laws, regulations, or administrative permits and licenses may adversely affect business performance and financial condition, and inadequate response to environmental laws and regulations (relating to air pollution, water pollution, hazardous substances, climate change, etc.) also carries the risk of leading to loss of credibility, incurrence of damages costs, and business suspension. The possibility cannot be ruled out that events that are extremely difficult to adapt to future environmental regulations, or unforeseen circumstances, may arise. As countermeasures, the Group has established a Compliance Committee including outside attorneys and Audit & Supervisory Board Members, developed the internal whistleblowing system "Furuno Hot Line," and built a product development and manufacturing framework compliant with environmental laws and regulations, among other measures.