YASUNAGA CORPORATION

If global inflationary pressure and elevated interest rates continue, customers' capital expenditure appetite may decline and their cost burdens may increase, potentially affecting orders and profitability. In particular, the Company is highly dependent on Toyota Motor Asia (13.1% of total sales) and Toyota Motor Corporation (10.8% of total sales), making it directly susceptible to fluctuations in the automotive industry. Businesses serving the electronics/semiconductor and housing industries are also affected by capital expenditure and construction start trends in their respective sectors, and the Company is pursuing balanced management across multiple fields.

If the power source of automobiles shifts away from internal combustion engines, the parts business and machine tools business may be structurally affected regardless of the overall production and capital expenditure trends of the automotive industry. If demand for internal combustion engine-related parts declines sharply, there is a risk that sales and profitability of the core businesses could fall significantly. The Group is diversifying into electronics, semiconductors, and other related fields to spread this risk.

The development of new technologies and the emergence of new products could result in the rapid obsolescence of the Company's products and a decline in their marketability. There is also a risk that intensifying price competition, driven by competitors launching lower-priced products, could make it difficult to maintain profitability. As countermeasures, the Company is actively working to introduce new technologies and reduce costs by leveraging synergies between the parts business and the machinery equipment business, and its R&D department is engaged in basic research and the creation of new businesses.

There is no guarantee that all products manufactured are free of defects or that recalls will not occur in the future, and a large-scale product defect could adversely affect business results and financial condition. Although the Company has product liability insurance, there is no guarantee that it will be sufficient to cover any eventual damages in full. Under the Group's basic policy of "pursuing the highest quality that is accepted worldwide," the Company is dedicating its full efforts to addressing quality issues.

Shortages caused by market fluctuations or sudden accidents or management problems at suppliers could make stable procurement of raw materials and parts difficult, disrupting production. There is also a risk that profitability could decline if prolonged surges in resource and energy prices cannot be sufficiently passed on to sales prices. As countermeasures, the Company is entering into basic transaction agreements with suppliers and building a system that allows equivalent products to be procured from multiple suppliers.

In its global business operations, fluctuations in the value of currencies in various regions could increase production, procurement, and logistics costs, reducing price competitiveness. In addition, translating the financial statements of overseas affiliates into yen is subject to the effects of exchange rate fluctuations, and rising interest rates on borrowings from financial institutions could increase interest expense, adversely affecting business results. As a risk mitigation measure, the Company has adopted a policy of denominating the majority of transactions in Japanese yen.

The Company currently conducts overseas operations at five locations in five countries, and is exposed to risks including changes in each country's economic environment, unexpected changes in laws and regulations, trends in economic security policy, international tax issues such as transfer pricing taxation, and political upheaval, regional conflict, and disasters. The occurrence of any of these events could affect business results and financial condition. The Company works to ensure safety by obtaining timely information from the Ministry of Foreign Affairs and local consulates and sharing information between the head office and overseas locations.

Because the Company's domestic production sites are concentrated in Mie Prefecture, a large-scale natural disaster such as a Nankai Trough megaquake could significantly affect business results and financial condition through operational disruption and substantial recovery costs. The Company has completed seismic reinforcement of buildings and facilities, and has introduced an early earthquake warning system and a mobile safety confirmation system. It has also formulated a Business Continuity Plan (BCP) to ensure the continuity and recovery of critical operations.

Developing and securing personnel capable of working globally is an urgent priority, and important challenges include addressing declining productivity and health risks associated with the aging of employees, as well as training young personnel to inherit technology and know-how. If these efforts do not proceed as planned, business results could be affected from a long-term perspective. The Company is engaged in active recruitment activities, enhanced employee training, appropriate personnel placement, and improvement of the working environment.

Increasingly sophisticated cyberattacks and other fraudulent activities could cause information system failures or the external leakage of confidential and personal information, potentially leading to the suspension of business activities and a decline in social credibility, which could affect business results and financial condition. The Company has established an Information Security Committee to build a company-wide management system, and implements ongoing measures based on its information security policy as well as employee training on responding to targeted attack emails and other threats.