SPK Corporation

The Group operates in more than 80 countries worldwide and is affected by changes in political and economic conditions and exchange rate fluctuations in various countries, particularly developing countries in Asia and Latin America. There are concerns about the impact on the supply chain due to trends in monetary and trade policies of major countries and heightened geopolitical risks. The Group has established a system for rapid response to environmental changes through its global network and cooperation with Group companies.

A decline in demand for replacement parts due to progress in electrification and autonomous driving technology, as well as rising import prices due to soaring logistics and raw material costs and yen depreciation, may affect business performance. Domestic vehicle ownership has increased by approximately 2 million units over the past 10 years, and the Company sees limited early adverse impact; however, it is promoting operational efficiency through logistics reform and system upgrades, as well as development of new business areas, to mitigate future risks.

There is risk related to the enactment, amendment, or abolition of a wide range of domestic and international laws and regulations, including the Companies Act, tax laws, the Foreign Exchange and Foreign Trade Act, the Personal Information Protection Act, the Antimonopoly Act, anti-bribery laws, and the logistics efficiency law. Violation of laws and regulations could lead to restrictions on business activities and loss of credibility. Measures being implemented include the use of legal support services and anti-social forces screening tools, and compliance training conducted by legal counsel attended by all employees (held three times this fiscal year, 100% attendance rate).

Country risks such as crisis events, terrorism, and financial crises at overseas locations, as well as intensifying competition with low-priced products from emerging markets, may affect business development and operating results. The continuation of geopolitical risks has led to an uncertain outlook, and if such risks materialize, they could result in uncollectible receivables and delays or losses in business execution. The Company maintains a system for regular information gathering in each country and rapid response utilizing its global network.

The Industrial Machinery Sales Headquarters supplies assembly parts and materials to industrial vehicle manufacturers such as construction vehicles, forklifts, and tractors, and if these manufacturers cut production, it could negatively affect business performance. This business area has a high dependence on specific customers, creating a risk that the impact of production cuts could directly spread to sales. The Company aims to mitigate this impact by maintaining and expanding existing businesses, developing new business areas, and strengthening proposal-based sales.

Goodwill arising from corporate acquisitions is recorded on the consolidated balance sheet, and if profitability declines due to changes in the business environment or other factors, impairment losses may be recognized, affecting operating results. The Company conducts thorough due diligence before acquisitions to assess corporate value and address potential risks, and promotes systematic PMI after acquisitions to maximize synergies. Reviews are conducted at least once a year, or more frequently if there are indications of impairment.

The Company has 19 locations domestically and operates in 8 countries overseas. In the event of crisis events such as war, conflict, earthquakes, tsunamis, infectious diseases, or terrorism, damage to facilities and systems or disruption of the supply chain could restrict business activities and significantly impact financial position and operating results. The Company prioritizes ensuring employee safety through the review of infectious disease response regulations and BCP, the provision of disaster preparedness bags, and the posting of evacuation routes, and works to mitigate risk by establishing backup systems between locations.

There is a constant risk of leakage of confidential and personal information or system outages due to unauthorized external access or computer virus intrusion, which could have a material impact on financial position and business performance depending on the scale of damage. Vulnerabilities in security management are of particular concern at smaller overseas locations. The Company continues to implement measures such as information security training, guideline development, revision of the privacy policy, and review of the confidential information management system.

There is a risk that demand for replacement parts for internal combustion engines and related components will decline over the medium to long term due to the progress of vehicle electrification (EV adoption). Currently, stable demand is maintained due to the increase in domestic vehicle ownership and the aging of vehicles, but the acceleration of electrification is expected to affect the business foundation in the future. The Company aims to mitigate this risk by continuing to develop new products that meet market needs and to open up new business areas.

There is a risk that the Company's export sales will decline due to increases in overseas local production volumes by automakers. As local production advances, the Company's traditional export business model may shrink, potentially affecting overseas sales. The Company is working to strengthen its trading rights and communication with customers while monitoring international conditions, utilizing the procurement and supply networks of its overseas local subsidiaries, and ensuring it does not miss the steady demand in the replacement parts market.