FDK CORPORATION

The Battery Business and Electronics Business are directly affected by economic trends in major markets, including North America, Europe, and Asia, as well as fluctuations in product market demand. In the event of an economic downturn or market contraction, both sales and profits could be adversely affected. The Group strives to identify and respond to risks through the Risk and Compliance Committee.

As overseas business expands, sharp fluctuations in exchange rates, particularly the US dollar, affect sales, profit/loss, and price competitiveness. A stronger yen has an adverse effect on the business, while a weaker yen has a favorable effect; conversely, appreciation of currencies in production regions may push up manufacturing and procurement costs and reduce profit margins. Exchange rates also affect yen conversion when preparing consolidated financial statements.

The consolidated interest-bearing debt balance at the end of the fiscal year under review was ¥15,997 million, including debt subject to interest rate fluctuations. In a rising interest rate environment, increased financial expenses could adversely affect business performance and financial condition.

In the battery and electronics fields, competition is intensifying not only from existing competitors but also from new entrants, creating risks of price declines exceeding expectations and failure to achieve cost reductions due to fluctuations in procurement prices. Price pressure and loss of competitiveness leading to customer attrition could directly and adversely affect sales and profits. The Group is working on developing high-value-added products and reducing costs, but this does not guarantee the maintenance of competitive advantage.

In the electronics field, technological progress is rapid, and new products and technologies can quickly become obsolete. If market and industry changes are insufficiently anticipated, or if competitors develop breakthrough technologies ahead of the Group, the value of the Group's products could decline significantly, adversely affecting future growth and profitability. The Group is working to accelerate the development of new products and new technologies.

Some production activities are conducted in China and Taiwan, creating risks of unexpected changes in laws and regulations, terrorism, war, loss of human resources, and other disruptions. Such events could adversely affect business performance and financial condition through increased response costs or suspension of production activities.

There is a risk of leakage of confidential information and personal information belonging to customers, business partners, and the Group, as well as a risk that cyberattacks and computer viruses could disrupt the operation of internal networks. If information leakage occurs, it could result in loss of trust, legal liability, and disruption to business continuity. The Group has implemented measures such as establishing internal regulations, providing employee training, and enhancing information infrastructure, but these do not guarantee complete prevention.

While products are manufactured based on ISO9001 certification and strict quality control standards, this does not guarantee zero defects or the absence of recalls for all products. If a large-scale recall or product liability claim occurs, it could significantly and adversely affect sales and business performance through substantial cost burdens and damage to corporate reputation. The Group has product liability insurance, but there is no guarantee that it will sufficiently cover the final amount of damages.

The increasing frequency and impact of natural disasters due to climate change, as well as unforeseen events such as a major earthquake directly beneath the capital or along the Nankai Trough, or an infectious disease pandemic, could occur at a scale exceeding the damage assumptions of the business continuity plan. Disruption to business site functions, damage to equipment, and supply chain damage could affect the continuity of business activities, including suspension of product shipments. The Group addresses this through the formulation of BCP and continuous promotion of BCM, but this does not guarantee complete prevention.

While the Group promotes the establishment of the "FDK Group Code of Conduct" and the development of internal systems, it cannot completely eliminate the risk of violating relevant laws and regulations domestically and internationally. If a legal violation occurs, it could adversely affect the business through loss of social trust and substantial fines or damage claims.