RION CO., LTD.

In the hearing aid market, sales competition has intensified due to the entry of major overseas manufacturers, and competition with other companies continues both domestically and internationally in particle counters, medical testing equipment, and acoustic and vibration measuring instruments. Price declines may reduce sales and lower profit margins, thereby affecting business performance. In the overseas segment (accounting for approximately 27% of net sales), the likelihood of this risk materializing is considered higher, while domestically the Company recognizes that it maintains relatively strong competitiveness owing to its brand recognition, technological capabilities, and industry influence.

In the fiscal year under review, the overseas segment accounted for approximately 27% of net sales, and export destinations include some countries that are politically and economically unstable. If economic changes, including foreign exchange fluctuations, or social disruption caused by terrorism, war, or similar events occur, business performance may be affected. The compounded materialization of geopolitical and foreign exchange risks represents a challenge specific to overseas expansion.

The product lines handled by the Group are subject to remarkable technological innovation, and a wide range of research and development activities are essential to continuously supply new products that meet customer needs. If rapid technological innovation causes significant changes in market needs, there is a risk that the market value of the Company's products could decline, undermining its competitive advantage as a manufacturer. In addition to development activities at the R&D center and each business division, the Company is pursuing company-wide consideration of new business models reflecting the shift from products to services.

The Group holds numerous intellectual property rights, and unauthorized use by third parties could result in the loss of profits that would otherwise be earned. Conversely, if the Group infringes on the intellectual property rights of a third party, there is a risk of increased litigation and legal costs, as well as the potential for substantial damages, including compensation for lost sales, depending on judicial rulings. The Company's policy is to minimize damage through resolute legal action against counterfeit products and similar infringements.

Although management is conducted based on quality control standards, if a product defect requiring voluntary recall occurs or if damage is caused to a third party, business performance may be affected due to claims for damages and similar liabilities. Because the Company handles many types of products with limited production volume per product, the increase in expenses associated with recalls is expected to be limited; however, if personal injury occurs during product use, there is a risk of substantial compensation payments. The Company's basic policy is to respond with sincerity in such cases.

Many of the products manufactured and sold by the Group are subject to legal regulations, requiring business licenses, notifications, and product-specific certifications. Violations may result in administrative dispositions such as suspension or revocation of business licenses, and changes in regulations may also affect business performance. The quality department continuously monitors licensing requirements and the legal environment on a daily basis, and the Company recognizes that the likelihood of an actual impact on business performance is very low.

In order to expand its business, the Group may make investments and loans domestically and overseas, including equity investments, establishment of subsidiaries, joint ventures, alliances, and M&A transactions, and it may be difficult to accurately predict the impact that the business conditions of investees could have on the Group. If the amounts invested or loaned cannot be recovered, or if an event subject to impairment occurs, business performance and financial condition may be affected. The Company's policy is to make investment and loan decisions only after thoroughly evaluating risks and the likelihood of recovery in advance.

The Group has production and sales sites both in Japan and overseas, and if a large-scale natural disaster such as an earthquake, tsunami, typhoon, heavy rain, flood, heavy snow, or epidemic occurs, business activities could be disrupted, potentially affecting business performance. In the worst case, business operations could be forced to suspend. The Company has formulated a business continuity plan (BCP) for emergencies and is implementing measures to minimize disruption to business activities.

The Kobayashi Institute of Physical Research, a general incorporated foundation and the Company's largest shareholder, is the founding body of the Company and has maintained a long-standing, friendly relationship as a joint research partner in basic research fields centered on acoustic physics. However, if the foundation's policy regarding its shareholding in the Company changes in the future due to changes in the foundation's operating conditions or other factors, this could affect the Company's management environment. While the friendly relationship continues at present, the foundation's future operational trends represent a potential risk factor.