NOK CORPORATION

The manufacture and sale of Seal Business products and electronic component parts account for the majority of the Group's business, with domestic and overseas automobile manufacturers, construction machinery manufacturers, and electronic equipment manufacturers as major customers. There is a risk that sales may decrease due to factors beyond the Group's control, such as deterioration in customers' business performance or unexpected contract changes. The Group seeks to reduce this risk by aiming for a balanced customer mix, but complete avoidance is difficult.

Freudenberg, with which the Group has maintained a capital and technical alliance since 1960, is an important partner in the Group's business development, and the relationship with this company forms part of the business foundation. If Freudenberg changes its business strategy or the alliance relationship changes, it could have a material impact on the Group's business. While the Group currently recognizes the relationship as stable and ongoing, the risk of change due to external factors cannot be eliminated.

Oil Seals and other major products are mainly intended for internal combustion engines, and there is a risk that demand for existing products will decrease as electric vehicles (EVs) and fuel cell vehicles (FCVs) become more widespread. The Group is proceeding with research and development of new products compatible with EVs and FCVs, but states that it is currently difficult to forecast the impact on future business performance and financial condition. Commoditization and downward price pressure due to the rise of manufacturers in emerging countries are also progressing simultaneously.

Overseas sales accounted for approximately 70% of consolidated net sales in the current period, and foreign exchange trends in each region directly affect business performance and financial condition. The Group implements hedging through forward exchange contracts and other means, but it is explicitly stated that this does not completely eliminate foreign exchange risk. In a yen appreciation phase, the yen-denominated value of overseas sales decreases, creating a risk of pressure on earnings.

Prices of major raw materials such as steel sheets, synthetic rubber, copper foil, resin film, and gold fluctuate depending on supply and demand conditions, creating a risk of pressure on earnings when immediate pass-through to product prices is difficult. The Group addresses this by securing stable procurement from a wide range of domestic and overseas business partners, but in phases of sharp price increases, an impact on business performance and financial condition is unavoidable.

The Group is subject to various laws and regulations in each country where it operates, and future legal amendments or tightening of regulations may result in additional costs. If environmental laws and regulations or customer environmental requirements are strengthened, there is a risk that the resulting response costs could become substantial and affect business performance and financial condition. The Group addresses this by establishing internal regulations for legal compliance, providing compliance training, and building a cooperative framework with external experts.

In conducting business in various countries, the Group may become a party to litigation or regulatory actions, creating a risk of monetary penalties or business restrictions being imposed. In addition, due to differences in national circumstances, there is a risk that the Group's own intellectual property rights may not be adequately protected, or that the Group may unintentionally infringe on the intellectual property rights of other companies, which could result in the discontinuation of sales or payment of damages. The Group seeks to hedge these risks through the establishment of an internal control system, cooperation with external experts, and various insurance policies.

The Group operates in Japan, North America, Europe, China, and other Asian countries, and there is a risk that changes in the political situation or economic conditions of the countries or regions where manufacturing and sales bases are located could affect business performance and financial condition. Geopolitical tensions, changes in trade regulations, and deterioration of local economies may constrain production and sales activities.

There is a risk that production and logistics activities could be halted due to natural disasters such as earthquakes, typhoons, floods, and volcanic eruptions, as well as fires and infectious disease pandemics. The Group addresses this through diversification of production sites, safety measures, various insurance policies, and the development of business continuity plans (BCP) by the BCM Committee, but states that complete prevention or mitigation is difficult. Based on its response to COVID-19 in 2020, the Group has also implemented measures such as developing work-from-home and remote work environments.

There is a risk of operational shutdown, loss of critical data, or information leakage due to malicious cyber attacks. The Group conducts investigations and preventive measures utilizing external organizations, but cannot completely eliminate operational impacts from unknown attack methods. If confidential information such as technical information or personal data leaks externally, this could result in a decline in social credibility and payment of damages, potentially affecting business performance and financial condition. In addition, in the event of a large-scale product quality defect, this would entail substantial response costs and risk of reputational decline.