Shinwa Co., Ltd.

Of the consolidated net sales of ¥86,146,486 million for the fiscal year under review, sales to the automotive-related industry amounted to ¥61,949,122 million (71.9% of total sales), with particularly high dependence on the Toyota Motor Group. If capital expenditure trends in the automotive-related industry stagnate, this could directly affect the Group's operating results. As a countermeasure, the Group is working to expand sales channels into other industries, but the degree of dependence has remained flat, moving from 70.6% in the 71st fiscal year to 71.9% in the 75th fiscal year.

The Group, which has subsidiaries in the United States, is subject to tariffs when importing materials and equipment from Japan and other countries. Currently, the direct impact is minor because customers bear the additional tariff costs, but customers may request that the Group bear these costs in the future. In addition, if a decline in automobile exports from Japan to the United States leads to lower capacity utilization at domestic plants and restrained capital expenditure, this could affect the Group's operating results and financial condition. The Group is addressing this by promoting the localization of procurement.

The Group has sales and manufacturing bases in the Americas, Asia Pacific, China, Europe, and other regions, and overseas sales for the fiscal year under review reached ¥27,183,713 million (31.6% of total sales). Fluctuations in foreign exchange rates may affect operating results. The Group mitigates this impact by, in principle, entering into forward exchange contracts for foreign-currency-denominated transactions, and by passing on the foreign exchange risk portion to export prices for large-scale equipment projects.

Projects for new plants and expanded production lines for automotive-related manufacturers can become large-scale projects with order values exceeding ¥1,000 million, and the period from order receipt to delivery can exceed one year. If such projects do not proceed as planned, delays in recognizing sales or deterioration in profitability may occur, and prolonged inventory holding periods could affect operating results and financial condition. The Group addresses this through risk identification at the order-taking stage and monitoring of project progress and profitability during implementation.

The Group has 12 overseas subsidiaries in 9 countries, and is exposed to risks such as unexpected changes in laws and tariff regulations, adverse political and economic changes, difficulty in securing personnel, unfavorable tax reforms, and terrorism, war, or deteriorating security conditions. If any of these risks materialize, they could affect the Group's operating results and financial condition. The Group strives to gather information and respond appropriately by utilizing information networks at overseas locations, support from Japan, and external consultants.

The Group holds confidential business information, customer information, and personal information, and there is a possibility that virus infections or cyberattacks beyond expectations could result in the destruction, falsification, or leakage of important data, or system outages. Should this occur, it could affect the Group's operating results and financial condition. The Group addresses this through the establishment of regulations based on its information security policy and thorough education and awareness activities for officers and employees.

As the movement toward a decarbonized society accelerates internationally, tightening of laws and regulations related to greenhouse gas emissions or the imposition of new tax burdens could affect the Group's business performance. The Group established a Sustainability Committee in April 2022 and has identified climate change response as one of its materiality issues, but has not yet disclosed specific emission reduction targets or similar measures.

The Group holds cross-shareholdings for the purpose of maintaining and strengthening relationships with business partners and financial institutions. If the value of these holdings declines due to sharp share price fluctuations or poor business performance of the issuing companies, impairment losses may be required, which could affect operating results and financial condition. The Board of Directors reviews the purpose of holding, transaction status, unrealized gains/losses, dividend amounts, and holding risks for all shares held once a year, and determines whether to continue holding or to reduce holdings through sale or other means.

Securing and developing excellent personnel in various fields is a key challenge for providing services that satisfy business partners, and failure to achieve this could affect operating results and financial condition. The Group addresses this through the continued, planned hiring of new graduates and mid-career professionals, and by building a workplace environment in which employees can work comfortably; this is set against a background of intensifying competition for talent both domestically and internationally.

The Group's main business is the sale of machinery and equipment and materials to a wide range of business partners in industries such as automotive, petrochemical, machinery, electrical equipment, and aerospace. If demand from business partners weakens or capital expenditure declines due to economic fluctuations, this could affect operating results and financial condition. The Group addresses this by closely monitoring market trends and gathering and analyzing information from customers, but its structure is particularly susceptible to the business cycle of the automotive-related industry given its high degree of dependence (71.9%) on that industry.