HIOKI E.E. CORPORATION

In FY2025 (ending December 2025), the ratio of overseas sales reached 63.6%, with a particularly high proportion attributable to the Asia region, centered on China. Geopolitical risks, economic trends, and regulatory changes in each country within this region may directly impact business performance. Although the Group continues measures to expand sales in Europe and the United States, the risk of regional concentration remains.

Many of the transaction currencies used are foreign currencies such as the Chinese yuan, US dollar, Korean won, and euro, and sharp fluctuations in exchange rates directly affect sales and profit levels. Translation differences also arise when converting overseas assets and liabilities into yen, which can have a significant impact on the financial statements. Although the Finance and Accounting Department of the General Affairs Division continuously monitors this risk, it is difficult to fully respond to sudden and substantial fluctuations.

Fluctuations in supply and demand and price surges for key raw materials such as electronic circuit components (semiconductors), metals, and plastics affect production costs. Although the surge in semiconductor component prices has settled somewhat, inventory balances have still not reached an appropriate level, and the risk of global trade stagnation and supply chain disruption due to the prolonged nature of US tariff policy has also newly emerged. The Group is responding through close communication with suppliers and by enhancing the added value of its products, but risks related to supply-demand and price fluctuations continue.

The primary users of electrical measuring instruments are manufacturing industries (electrical equipment, automobiles, electronic components, environment, new energy, etc.), and sales tend to be linked to trends in capital expenditure within the manufacturing sector. Should capital expenditure fluctuate beyond expectations due to various factors, including instability in financial markets, this could have a significant impact on business performance and financial condition. The Group continuously monitors market conditions in each region and industry and takes prompt measures, but its dependence on the external environment remains high.

The Group holds confidential information and personal data belonging to customers, business partners, and employees, and there is a risk of information leakage, destruction, or tampering due to cyberattacks, internal negligence, theft, and similar causes. In recent years, digital regulations such as data regulations and restrictions on AI use have been strengthened in various countries, which may constrain new product development and overseas business expansion. Although the Group implements measures such as strengthening IT security and conducting employee training, complete defense against attacks exceeding expectations is difficult.

While growth in the electrical measuring instruments market is expected against the backdrop of the global trend toward decarbonization, there is a risk of falling into price competition due to new entrants, intensifying competition, or the Group's technological development capabilities lagging behind competitors. The Group aims to expand its business through global new product development, but changes in the competitive environment may affect business performance.

Since the construction of the research building, the Group has continued to actively invest in expensive experimental research facilities, and in July 2024, brought the Ueda No. 2 Plant into operation. This represents a substantial increase in capital expenditure compared to the past, and the resulting increase in depreciation expense burden may become a factor pressuring business performance. While capital expenditure is recognized as contributing to business expansion, the scale of the investment constitutes a risk factor.

Inventories are valued using the write-down method based on declining profitability, and if fluctuations occur in the turnover period of individual items due to changes in market capital expenditure trends or sluggish demand caused by competing products, additional valuation losses may need to be recognized. The Group is working to reduce inventory following the surge in semiconductor component prices, but inventory balances have still not reached an appropriate level, and the risk of valuation losses remains.

The source of growth for the Group is its employees in Japan and overseas, and while the Group is promoting recruitment, education, and training at each group company, there is a risk that this may not proceed as planned. Although the Group continues to review its personnel systems and develop an environment for autonomous working styles, if recruitment and development of human resources fall short of plans, this may affect business performance and financial condition.

The Group has sales subsidiaries in multiple countries, including the United States, China, and South Korea, and pays taxes in accordance with the tax systems of each country. As such, there is a risk that unexpected tax reforms or findings by tax authorities regarding transfer pricing taxation could result in additional tax assessments or double taxation. The Group monitors tax reform trends in each country as appropriate and strives to comply with transfer pricing taxation rules, but tax risks associated with global business expansion continue to exist.