SUMIDA CORPORATION

Prices of key raw materials such as copper, iron, and crude oil are constantly fluctuating due to international market conditions and speculative trading, and in situations where it is difficult to pass these costs through to product prices, business performance may be adversely affected. In addition, rising logistics costs due to container shortages and port disruptions, as well as rising energy prices due to sharp inflation, may also impact business performance. As countermeasures, the Group incorporates copper price-linked mechanisms into contracts with customers, and is promoting local production for local consumption and the use of renewable energy.

Approximately 60% of revenue is derived from automotive-related customers, creating a risk that revenue could fluctuate significantly depending on trends among this customer group. Policy and subsidy trends in various countries as well as changes in the business environment of automotive-related industries may affect business performance. The Group seeks to reduce this risk by maintaining long-term, close business relationships with major customer groups and sharing production/sales outlooks and business strategy directions.

With the progress of xEV adoption, advanced technical requirements such as high voltage resistance, miniaturization, and high quality standards are demanded, while price competition is intensifying due to an increase in new competitors entering the market. In the home appliance market, customer adoption criteria are shifting from quality-focused to price-focused, requiring the establishment of a system to offer products at optimal prices. In response, the Group is pursuing differentiation through improved product quality and strengthened global operations, participation from the customer's initial development stage, and the establishment of an optimal pricing structure through the use of contract manufacturers.

Geopolitical developments such as US-China trade friction, changes of government in Europe, and conflicts in the Middle East may restrict production, logistics, and sales activities, potentially disrupting product supply to customers. Policy changes such as tariff increases, export restrictions, and trade restrictions on emerging technologies in various countries pose a risk of adversely affecting financial position and business performance. As countermeasures, the Group is reviewing transaction formats and supply chains, diversifying risk through multiple production sites, and building a local production for local consumption structure by strengthening manufacturing capacity in Japan, Thailand, and Vietnam.

Non-conformance to required specifications or defects in products may cause customer production line stoppages or malfunctions in electronic equipment. In the event of a defect, there is a risk of adverse effects on financial position and business performance due to decreased revenue, loss of market share, damage to brand trust, and potential claims for compensation associated with customer market recalls. The Group is committed to continuously improving product quality, but it is difficult to completely eliminate this risk within a global production structure.

At production sites in China, other parts of Asia, Europe, and North America, rising personnel costs and social insurance premiums, as well as production cost increases due to system changes, may adversely affect business operations, financial position, and business performance. In particular, wage increase pressures in emerging countries may become a continuous factor in rising costs. As a countermeasure, the Group is working to continuously improve labor productivity by promoting the automation of production processes.

The Group is subject to a wide range of laws, regulations, and government approvals both in Japan and overseas, and in the event of a violation, there is a risk of disposition by regulatory authorities, litigation, suspension of business activities, and damage to corporate brand value. New or strengthened public regulations, or unexpected application thereof, in the course of global expansion may restrict business activities and increase compliance costs. As countermeasures, the Group has established a supervising department, developed internal rules, formulated the "Sumida Group Principles of Management and Code of Conduct," established an internal whistleblowing system, and conducts regular training for officers and employees.

Increasingly sophisticated and advanced cyberattacks pose a risk of leakage or falsification of confidential technical and business information, as well as damage to production equipment, affecting production activities. The threat of cyberattacks, including ransomware, has increased in recent years, raising concerns about adverse effects on financial position and business performance due to information leaks and business disruptions. As countermeasures, the Group has organized an Information Security Office and implements comprehensive security measures including multi-factor authentication, access control management, regular backups, phishing countermeasure e-learning, and BCP measures.

Natural disasters such as major earthquakes, floods, and tsunamis, the spread of infectious diseases, war, terrorism, civil unrest, labor issues, restrictions on electricity use, and the intensification of disasters due to climate change may cause delays or stoppages in raw material procurement, production, and sales. In particular, events involving widespread social disruption could have a serious impact on the entire supply chain of the globally operating Group. The Group seeks to reduce this risk by dispersing multiple production sites around the world, but responding to simultaneous disasters in multiple locations may be difficult.

Regarding goodwill and other intangible assets recognized through M&A, if the burden of aligning management policies with the acquired company and integrating various systems and structures exceeds expectations, and the anticipated synergies are not achieved, the resulting impairment loss may have a material impact on financial position and business performance. Future revenue growth plans involve uncertainty, and failure to achieve sales expansion measures could trigger goodwill impairment. As a countermeasure, the Group assesses the presence of synergies prior to executing M&A and conducts impairment testing at least once a year.