HAMAMATSU PHOTONICS K.K.

The Group conducts business in countries around the world, including Japan, Europe, and the United States, and product demand is significantly affected by the economic conditions in each country. If economic fluctuations occur that exceed expectations, this could affect business results and financial condition. As a countermeasure, the Group is promoting sales to industries less susceptible to economic fluctuations, such as the medical field, and diversifying risk through sales to a wide range of fields including industrial, analytical, and academic research applications.

In the Electron Tube Business, Optical Semiconductor Business, and Imaging & Measurement Systems Business, if price competition and development competition intensify in core businesses whose customers include major global manufacturers and end users, market share and profitability may decline, affecting business results. As a countermeasure, the Group is promoting continuous introduction of new products, expansion of production capacity, and development of new markets.

There remain many unexplored areas in the essential nature of light, and if the Group is unable to acquire new knowledge or if innovative technologies are developed by other companies, it may lose its competitiveness in the current market. In addition, research and development investment does not necessarily translate directly into net sales or profits, which could affect business results and financial condition. As a countermeasure, the Group is focusing on exploring unknown areas of light and creating new industries, continuously working on the planning and development of new technologies, and cultivating human resources.

Overseas sales account for a high proportion of approximately 80% of consolidated net sales, and there is a risk that the translated amounts of revenue, expenses, and assets of overseas subsidiaries will fluctuate due to exchange rate movements. A sharp appreciation of the yen or a prolonged trend of yen appreciation may necessitate price pass-through negotiations in local currency transactions, which could affect business results and financial condition. As a countermeasure, the Group is working to minimize the impact by promoting the introduction of high value-added products, expanding yen-denominated transactions at overseas subsidiaries, and utilizing forward exchange contracts.

Since the head office and production and R&D facilities are concentrated in Shizuoka Prefecture, large-scale disasters such as the Tokai and Tonankai earthquakes, as well as accidents or epidemics, could paralyze manufacturing lines, R&D facilities, information systems, and the supply chain, significantly impacting production capacity. As a result, a substantial decline in sales and significant costs related to facility restoration could occur. As a countermeasure, the Group has established a BCP and secured risk financing such as earthquake insurance and earthquake commitment line agreements, building a system for early business recovery.

In global business operations where overseas sales account for approximately 80% of net sales, political instability, deteriorating economic conditions, legal and regulatory violations, and labor-management issues in countries of operation, as well as social disruption caused by terrorism, war, and disease, could affect business results and financial condition. As a countermeasure, the Group has established a dedicated department within the company to conduct regular information gathering and exchange, and strives for early resolution when problems arise.

If important information assets held through business activities, such as transaction information, technical information, and personal information, are leaked or tampered with due to network virus infection, cyberattacks, or similar causes, or if operations are halted due to system failures, this could affect business results and financial condition. As a countermeasure, in addition to developing internal regulations, providing employee training, and introducing and updating security technologies, the Group has taken out cyber insurance and established a collaborative framework with external specialist organizations.

In some regions, intellectual property protection is insufficient, and the Group may be unable to prevent third parties from manufacturing similar products. In addition, if intellectual property rights exist that the Group is unaware of, there is a risk of rights infringement or restrictions on the use of intellectual property obtained through R&D investment. These factors could affect business results and financial condition. As a countermeasure, the Group has established a dedicated department to comprehensively file and secure rights for new technologies and know-how, and has strengthened its efforts to prevent infringement of third-party intellectual property rights in cooperation with law firms and other partners.

Some components used in production activities use special raw materials with limited suppliers, and if delays or shortages in procurement occur, this could affect not only the Group's production activities but also those of its customers. As a countermeasure, the Group is strengthening relationships with suppliers, diversifying and decentralizing suppliers and production sites including overseas, considering switching to alternative materials, and advancing research and development of alternative materials.

In M&A and business alliances aimed at sustainable growth, if the expected synergy effects and business development do not proceed as initially anticipated, this could affect business results and financial condition. As a countermeasure, the Group strives to maximize integration effects through thorough due diligence to examine potential risks before acquisitions or alliances, smooth business integration through post-acquisition PMI implementation, regular verification of business plans against actual results, and strengthened communication with acquired companies.