SEIKOH GIKEN Co., Ltd.

Demand for the Group's products and services is affected by the economic environment in Japan, Asia, Europe, and the United States. If significant fluctuations occur in the economic conditions of major markets, this may affect business performance and financial condition. Because the Group operates globally, there is a risk that an economic downturn in a specific region could spread to overall sales.

As the Group has overseas consolidated subsidiaries and engages in overseas exports, yen appreciation adversely affects business performance. In addition, since the Group has production facilities in China, an increase in the value of the renminbi could push up production costs and lead to a decline in competitiveness. Exchange rate fluctuations affect both revenue and costs, resulting in a significant impact on financial condition.

In related markets such as automotive, electronic equipment, optical communications, and medical/bio fields, the Group recognizes that continuous development of innovative products and technologies is essential for growth and survival. However, market changes occur rapidly, and the new product development process is complex and highly uncertain. If the Group is unable to anticipate changes in market needs, or if products become obsolete due to technological innovation, this may affect business performance and financial condition.

The Group provides products and services to industries such as automotive parts, electronic components, machinery equipment, and optical communications, and price competition is intensifying due to the entry of competing manufacturers. Although the Group continuously works on cost reduction, if price declines become significant and the Group is unable to maintain its price advantage, this may adversely affect business performance and financial condition.

DENSO Corporation, the Group's major customer for automotive insert molded products, accounted for 17.7% of sales in the current consolidated fiscal year. Changes in DENSO's business conditions, business policy, or the relationship between the companies could directly affect the Group's business performance and financial condition. High dependence on a specific customer is a risk factor for the stability of sales.

While the Group strives to secure stable supply through procurement from multiple suppliers, some raw materials depend on a limited number of suppliers. If supply is disrupted due to natural disasters, infectious diseases, accidents, bankruptcy of suppliers, or if supply becomes tight due to a surge in demand, this could disrupt production activities and affect business performance and financial condition.

As the Group operates globally with bases in the United States, Germany, France, China, and Thailand, it is exposed to a wide range of risks including import/export regulations, changes in systems, international tax risks such as transfer pricing taxation, labor disputes, and social unrest caused by terrorism or infectious diseases. If these risks materialize, they may adversely affect business performance and financial condition.

Securing and developing personnel with excellent technical and management capabilities is essential for enhancing corporate value, but competition to acquire outstanding talent is intense, and continuous acquisition is not guaranteed. There is also a risk that key personnel may leave the company due to increased labor mobility resulting from changes in the employment environment. If the Group is unable to secure and develop human resources as planned, this may significantly affect business performance and financial condition.

Although the Group makes maximum efforts to maintain product quality, if defects occur in products sold, this could result in compensation to customers and costs associated with handling claims. Since the Group handles products such as automotive parts that require safety, quality issues may adversely affect not only business performance and financial condition but also relationships with customers and the Group's credibility.

Although the head office plant (Matsudo City, Chiba Prefecture) employs a seismic isolation structure and production facilities are distributed both domestically and internationally, the risk of long-term business disruption due to large-scale earthquakes, typhoons, or other natural disasters cannot be completely eliminated. In addition, if a large-scale spread of COVID-19 or a new infectious disease causes business activities of Group companies or customers to stagnate, this may affect business performance and financial condition.