KOA CORPORATION

The Group has expanded its production and sales operations overseas, and changes in economic trends and political/social conditions in the countries where it operates, as well as import/export regulations and foreign exchange controls related to economic security, changes in U.S. trade policy, and changes in laws, regulations, and tax systems, may affect business performance. As a response to transfer pricing tax risk, the Group has introduced a transfer pricing policy and is working to reduce risk through documentation preparation utilizing tax specialists.

Raw materials used in major products include items significantly affected by precious metal market prices, and if price increases cannot be sufficiently passed on to customers during a sharp rise in raw material prices, this may adversely affect business performance. In addition, if the supply chain of a supplier is disrupted due to conflicts, natural disasters, or changes in laws and regulations, or if a supplier discontinues production based on its own business judgment, there is a risk that stable procurement will become difficult and the Group will be unable to fulfill its supply responsibilities to customers. The Group strives to ensure stable procurement by diversifying suppliers and building trust-based relationships with business partners.

The occurrence of large-scale natural disasters such as earthquakes and floods, pandemics, conflicts, and similar events may make it difficult to use sales and production facilities, or may disrupt business activities or delay/halt production due to interruption of transportation networks, cessation of energy supply, or communication outages. Some products are produced at multiple sites worldwide to diversify risk, but it remains difficult to avoid risk comprehensively across all sites.

Amid the declining birthrate, aging population, and increasing labor mobility, insufficient recruitment and development, or failure to leverage diversity in decision-making, may lead to insufficient execution of management strategy and stagnation of innovation, resulting in loss of competitiveness and impact on business performance. The Group is working to develop a workplace environment and revise systems that are not limited by age, gender, or location, and is striving to place the right people in the right positions.

There is a risk of damage such as information leakage, tampering, or system outages due to computer virus intrusion or sophisticated cyberattacks, and if such incidents occur, they may result in significant costs for additional response measures and damages. As countermeasures, the Group is working to maintain and improve the confidentiality, integrity, and availability of information through the installation of hardware, company-wide information security training, and the establishment of an "Information Security Committee."

Intense competition in the electronic components market has led to a tendency for product prices to decline, and delays in new product releases or failure to achieve cost reductions may adversely affect business performance. Amid expected intensifying competition, a significant decline in product prices may also result in the recognition of valuation losses on inventories or impairment of tangible fixed assets due to deteriorating business performance. The Group strives to secure profits through the introduction of new products and cost reductions.

If product defects result in serious problems such as market claims or recalls, this may lead to significant damages payments and a decline in sales, affecting business performance. The Group has established "Quality 1st" as a management policy and continues to promote improvement activities aimed at "building a zero-defect flow."

As the Group has expanded production and sales operations overseas, foreign currency-denominated transactions occur in various countries, and significant fluctuations in exchange rates may affect business performance. The Group makes efforts to minimize risk by entering into forward foreign exchange contracts, but it remains difficult to fully hedge against sharp exchange rate fluctuations.

The Group has increased purposeful inventories, including work-in-process inventory to promote multi-site production for ensuring supply responsibility, raw material inventory for business continuity, and product inventory to respond to customers' demand for short delivery times. If inventory with no prospect of sale arises due to sudden environmental changes exceeding expectations, this may result in the recognition of valuation losses on inventories. The Group thoroughly manages inventory turnover ratios and reviews appropriate inventory levels in response to changes in risk.

As a physical risk, a decline in sales may occur due to road disruptions around production sites caused by heavy rain disasters or the halting of supply chain logistics; as a transition risk, increased burdens from rising energy costs, fuel adjustment charges, and renewable energy levies may affect business performance. The Group analyzes the financial impact of climate change in accordance with TCFD recommendations and is advancing measures to reduce risk and capture opportunities.