CMK CORPORATION

The Group operates businesses in Japan, China, Southeast Asia, and Europe and the United States, and conducts transactions in multiple currencies including yen, US dollars, euros, renminbi, and Thai baht. As a result, exchange rate fluctuations affect the yen-converted amounts of revenue, expenses, assets, and liabilities. In particular, sudden exchange rate movements may result in recognition of foreign exchange losses or a decline in price competitiveness. The Group addresses this through measures such as forward foreign exchange contracts and the establishment of a cross-border pooling system, but recognizes that, due to the involvement of numerous external factors, it is difficult to completely eliminate the impact.

Sales to several major customers exceed 40% of consolidated net sales, resulting in a structure with a high degree of dependence on specific customers (such as Denso). If such customers change their procurement policies, shift orders, or revise pricing terms, order volumes and sales may decline significantly, potentially having a material impact on operating results. The Group is pursuing customer diversification through expansion into new business areas such as FA and industrial machinery, and defense and aerospace, as well as through M&A, but recognizes that short-term results from these efforts are limited.

As the automotive market is the Group's core business, fluctuations in demand within the automobile industry, trade policy changes, and declines in production volumes due to semiconductor supply shortages directly affect business performance. A decline in cost competitiveness due to rising raw material prices, energy costs, and labor costs could disadvantage the Group in winning orders, creating a risk of order shifts to competitors. The Group is promoting sales expansion into new business areas such as FA, industrial machinery, telecommunications, and healthcare, but there is no guarantee that sales and profits will be secured as planned.

The Group is subject to a wide range of laws and regulations in Japan and overseas, including the Companies Act, the Antimonopoly Act, environmental laws and regulations, security export control laws and regulations, and anti-corruption laws and regulations. Violations may result in administrative sanctions, fines, damages claims, and production suspensions, as well as damage to corporate brand value. Similar risks arise in the event of compliance issues such as cartels, corruption, or quality data fraud. The Group addresses these risks through the establishment of a Risk Management Committee and Compliance Committee, and the development of internal whistleblowing channels, but recognizes that it is difficult to completely prevent human error or intentional misconduct.

As a transition risk associated with decarbonization, insufficient response to the introduction or strengthening of carbon pricing and to customer demands for CO2 reduction from suppliers may result in the loss of order opportunities and a decline in corporate value. As a physical risk, production sites in Japan, China, and Thailand may face operational suspensions, increased recovery costs, and supply chain disruptions due to the intensification of heavy rain, floods, typhoons, and other events. The Group addresses this through scenario analysis based on TCFD recommendations, BCP development, and the introduction of renewable energy, but recognizes that, given the significant influence of external factors, it is difficult to completely avoid such impacts.

The Group has production plants in Japan, China, and Thailand. In the event of a large-scale natural disaster such as an earthquake, typhoon, or flood, damage to buildings and equipment, logistics disruptions, and the burden of recovery costs may have a material impact on operating results. In the event of a large-scale outbreak of an infectious disease such as COVID-19, restrictions on employee attendance, supply chain disruptions, and demand declines may also occur. The Group addresses this through BCP formulation, disaster prevention drills, and insurance coverage, but recognizes that it is difficult to completely avoid damage from events exceeding assumptions, such as a major earthquake directly beneath the Tokyo metropolitan area or a Nankai Trough earthquake.

Global fluctuations in crude oil and material prices affect material costs, and material supply shortages caused by suppliers' production shortfalls or unforeseen accidents may cause production delays or suspensions, potentially affecting operating results. Regarding rising raw material prices, the Group negotiates price pass-through with its customers, but if such pass-through does not proceed sufficiently, profitability will be under pressure. The Group works to stabilize supply through procurement from multiple suppliers and the conclusion of basic transaction agreements, but it is difficult to completely eliminate the risk of supply disruption.

At overseas sites such as China and Thailand, political, economic, and social risks are inherent, including political upheaval, economic deterioration, conflict, terrorism, changes in import/export regulations, and foreign currency remittance restrictions. If these risks materialize, they may impair business continuity through factory operation stoppages, logistics disruptions, impairment of asset value, and the emergence of legal liability. The Group addresses this through information gathering and analysis in cooperation with local subsidiaries and specialized organizations, BCP development, and diversification of production sites, but recognizes that complete elimination of these risks is difficult given the potential for sudden changes in the business environment.

If capital investment based on demand forecasts becomes excessive due to an economic downturn or a shift in customer policy, it may adversely affect business performance through lower utilization rates, increased depreciation expenses, and the recognition of impairment losses. Conversely, delays in investment may lead to lost order opportunities and a decline in market share. If major production equipment becomes inoperable for an extended period due to failure, aging, or fire, production suspensions, shipment delays, and recovery costs may result. The Group addresses this through regular inspections, preventive maintenance, a multi-site production structure, and insurance coverage, but recognizes that it is difficult to completely eliminate unforeseen risks arising from external factors.

In M&A transactions and capital or business alliances aimed at acquiring new technologies or entering new business areas, insufficient due diligence, deterioration of the business environment after acquisition, failure to achieve synergies, or the departure of key personnel may delay the recovery of invested funds and lead to the recognition of impairment losses on goodwill or intangible fixed assets, adversely affecting operating results. There is also a risk that, if suitable candidates cannot be secured, the execution of the growth strategy may not proceed as planned. The Group addresses this through a multifaceted analysis framework involving internal departments and external experts, as well as PMI monitoring, but recognizes that expected results may not be achieved due to sudden changes in the market environment and other factors.