HOKURIKU ELECTRIC INDUSTRY CO.,LTD.

The Group manufactures and sells resistors, module products and other products for electronic equipment manufacturers worldwide. Economic downturns in Japan, Europe, the United States, Asia and other markets, as well as changes in laws and regulations such as tariff increases and import/export restrictions, may adversely affect business performance and financial condition. As countermeasures, the Group is responding flexibly through expanded sales to the automotive market, which has a long product life cycle, diversification of production sites, and flexible adjustment of operating days.

Disruptions to raw material supply or sharp price increases caused by import/export restrictions, infectious diseases, war, disasters and other factors may lead to higher manufacturing costs or production stoppages, and there is also a risk of recording valuation losses on excess inventory due to sudden changes in market conditions. The Group addresses this through procurement from multiple suppliers and countries and by formulating production plans based on customer order trends and market analysis.

The overseas sales ratio for the current fiscal year was high at 45.6%, and revenues, expenses, and the valuation of assets and liabilities in foreign currency-denominated transactions are affected by exchange rate fluctuations. There is also an impairment risk from declines in the share prices of marketable securities held by the Group. The Group addresses this through the use of forward exchange contracts and a policy of gradually selling down and reducing cross-shareholdings.

In the electronic components industry, where the pace of technological innovation is rapid and customer requirements change drastically, failure to respond to sudden market changes or rapid technological innovation may adversely affect the business, performance, and financial condition. The Group addresses this through feedback from market analysis and technology trend forecasting by its marketing department, and by expanding development into the services field, including software technologies.

Module products are highly dependent on specific customers, and given the particularly high proportion of sales to the automotive market, trends in that market may directly affect business performance and financial condition. The Group is working to reduce its dependence on specific customers and products by expanding sales to a wide range of applications and customers and by developing sustainability- and DX-related products.

The Group operates production sites in China and Southeast Asia, and changes in economic trends and political and social conditions in each region, as well as unexpected disasters, may cause problems in business execution and adversely affect business performance. The Group recognizes that changes in the international situation, such as the situations in the Middle East and Ukraine and the spread of infectious diseases, are becoming more significant, and is diversifying risk by strengthening its production system in Southeast Asia.

Transition risks such as requirements to procure renewable energy and carbon taxes may increase costs, while physical risks such as typhoons and floods may cause production stoppages at Group companies and difficulties in procuring components, potentially affecting business performance. In addition to promoting energy conservation, introducing renewable energy, and developing environmentally friendly products, the Group addresses this by evaluating its BCP at least once a year.

The Group holds confidential information and personal information belonging to business partners, and increasingly sophisticated cyberattacks, unauthorized access, and internal negligence may result in the destruction or leakage of information or the suspension of information systems. The Group strives to strengthen its management framework through vulnerability assessments by external organizations, monitoring for unauthorized access, employee security training, and virus countermeasure drills.

The Group is subject to a wide range of regulations in Japan and overseas, including those relating to commercial transactions, antitrust, intellectual property rights, product liability, the environment, and import/export controls. Violations of these regulations or misconduct by officers or employees could result in legal sanctions, business suspension, or damage to the corporate brand. The Group addresses this through risk analysis and reporting to the Board of Directors by the Governance/Compliance Subcommittee within the Sustainability Committee, as well as compliance education across the Group.

While the need to secure personnel with specialized expertise and diverse capabilities is increasing in order to pursue quality- and technology-focused product development and business expansion, changes in the employment environment such as the declining birthrate, aging population, and shrinking labor force may make it difficult to secure such personnel, which could significantly affect business development, performance, and growth. The Group aims to retain talent through planned and proactive promotion of new graduate and mid-career hiring, and by improving employee engagement through fair evaluation.