ONO SOKKI Co., Ltd.

For products used in critical processes such as development, certification, and production at customers in the automotive and electrical equipment industries, if quality defects or non-compliance with domestic and overseas laws and regulations occur, this could result in significant remediation costs, compensation claims, and loss of social credibility, potentially having a material impact on business performance and financial condition. Both impact and likelihood are assessed as high, and this risk is positioned as the top-priority risk to be managed for the Group.

As the Group holds important information such as technical information and customer information, if computer virus infection or unauthorized access leads to external leakage, this could affect business performance and financial condition. As countermeasures, the Group has obtained ISO27001 (ISMS) certification and is working to strengthen the security and reliability of its information management systems; however, complete protection remains difficult given the increasing sophistication of cyber threats.

Since business activities are supported by specialized personnel, if the Group is unable to secure and develop excellent personnel as planned, or if personnel leave the Group, this could affect business performance and financial condition. Although the Group is working to strengthen personnel development through continuous education and training, the impact is assessed as significant against a backdrop of intensifying competition in the labor market.

As the automotive and electrical/electronics industries are the Group's principal users, business performance is significantly affected by trends in research and development investment and production in these industries. A decline in demand from a specific industry could affect business performance and financial condition, and industry concentration risk is inherent.

For key raw materials such as electrical and electronic components and metals and plastics, in addition to the impact of semiconductor market trends on procurement, rising raw material prices due to inflation and exchange rate fluctuations could affect business performance and financial condition. In particular, electronic circuit components are structurally prone to heightened procurement risk during periods of tight semiconductor supply and demand.

As the Group seeks to expand its business in overseas markets, uncertainty arising from differences in laws and business practices across countries and regions, changes in economic conditions, regional conflicts, and the impact of trade policy could affect business performance and financial condition. Geopolitical risk and changes in the regulatory environment can directly affect the profitability of overseas operations.

The Group holds numerous fixed assets, including buildings, building-related facilities, and production equipment, and aging of these assets could affect production, increase renewal and maintenance costs, and impact safety, thereby affecting business performance and financial condition. There is a risk that delays in equipment renewal investment or increased costs could put pressure on earnings.

With respect to tangible and intangible fixed assets recorded as business-use assets, if expected cash flows cannot be generated due to divergence from business plans or other factors, impairment processing may become necessary, potentially affecting business performance and financial condition. Although the likelihood is assessed as low, the impact is recognized as moderate.

Tightening of environment-related laws and regulations is expected to increase costs associated with the transition to a decarbonized society, and if the Group is slow to respond to growing demands for such a transition, this could result in lost sales opportunities and a decline in corporate value, thereby affecting business performance and financial condition. Both transition risk and physical risk can affect the business.

The occurrence of natural disasters such as large-scale earthquakes or lightning strikes and flood damage caused by climate change, accidents such as fires, and other unforeseen events could affect business performance and financial condition. Although the likelihood is assessed as low, the impact on business continuity is recognized as moderate, making the development of a business continuity plan (BCP) important.