Hakudo Co.,Ltd.

Prices of non-ferrous metals such as aluminum and copper alloys fluctuate in line with raw material market conditions, and significant market fluctuations can have important positive or negative effects on business performance. The inventory valuation impact for the fiscal year under review was a gain of ¥411 million (a gain of ¥378 million in the previous fiscal year). As countermeasures, the Company seeks to reduce the impact through quarterly or as-needed pass-through of price changes to sales prices, optimization of inventory volumes, and implementation of long-term stagnant inventory valuation.

The Company has a high proportion of sales to the semiconductor manufacturing equipment industry and the FPD manufacturing equipment industry, and cyclical fluctuations known as the "silicon cycle" and "crystal cycle" directly affect business performance. While long-term expansion of semiconductor demand is currently anticipated due to the expansion of the IoT, DX, and generative AI markets, risks remain at the time of cycle transitions. As countermeasures, the Company is promoting demand diversification through expanded deployment into the aerospace, automotive, and environmentally-friendly product groups, expansion of the ECO series product lineup, and enhanced functionality of Hakudo Net Service.

In business expansion through corporate acquisitions, capital participation, and mergers, there is a risk that initially assumed financial targets and synergy effects may not be realized, or that contingent liabilities or unrecognized liabilities may come to light, or that goodwill impairment may occur. Cases where PMI does not proceed as planned, or where the target business's strategy is inconsistent with the Company's management philosophy, could also affect business performance and financial condition. As countermeasures, the Company has established a multi-stage review process for investment decisions, strengthened PMI with quantitative and qualitative measurement of effects, set withdrawal conditions on a case-by-case basis, and established a system for consultation with experts.

If any of the Company's plants suffers serious damage from a natural disaster, large-scale accident, emerging infectious disease, or similar event, this could result in prolonged suspension of operations or large-scale repairs, and could have a material impact on business performance and financial condition, including ripple effects on major customers and suppliers. As countermeasures, the Company has built a risk diversification system through plant dispersion, seismic reinforcement construction, and comprehensive damage insurance, and conducts regular reviews of its BCP and safety confirmation drills. The Company has also established insurance coverage and rapid response systems at its overseas locations.

If a failure of computer systems or communication networks, a cyberattack, or an information leak occurs, this could lead to suspension of business activities, loss of social trust, and a decline in sales or an increase in selling, general and administrative expenses. In fiscal 2024, the Company obtained JIS Q 27001 certification at all business sites and established a system for continuous monitoring of unauthorized external access by its information security countermeasure team. The Company is working on continuous improvement of information security management through the renewal of aging systems, encryption of PCs and other information devices and remote wipe capability, and ongoing employee training.

In both cases where the Company implements business restructuring and where it is subject to restructuring by others, there is a risk of reduced employee motivation due to changes in working conditions arising from the integration of personnel systems, litigation risk from disadvantageous changes, and increased personnel costs. In addition, if a restructuring fails to achieve the initially expected effects or profitability and results in business withdrawal, this could affect business performance and financial condition. As countermeasures, the Company is implementing reduction of redundant functions and personnel reallocation, quantitative and qualitative measurement of effects, pre-setting of withdrawal conditions, and regular coordination with legal and accounting experts.

The Company conducts overseas business in the North America and Asia markets, and there is a possibility that expected profits may not be achieved due to changes in local tax systems and regulations, political and economic conditions, exchange rate fluctuations, or deterioration in the financial condition of partner companies or dissolution of partnerships. As the Company continues to actively pursue overseas expansion going forward, its risk exposure is on an expanding trend. As countermeasures, the Company has built a loss prevention system through coordination with local experts, regular credit investigations, and enrollment in various types of insurance.

If the supply of raw materials such as aluminum and copper alloys, which are the Company's main sales items, is disrupted for any reason, this could have a significant impact on manufacturing and sales activities. This is listed as a significant risk in the risk catalog in the Annual Securities Report, but it is not included among the risks described in detail as key risks, and no specific evaluation of impact or likelihood of occurrence is disclosed.

If it becomes difficult to secure and develop the human resources necessary for business continuity and growth, this could lead to a decline in competitiveness and an adverse effect on business performance. This is listed as a significant risk in the risk catalog in the Annual Securities Report, but it is not included among the risks described in detail as key risks, and no specific evaluation of impact or likelihood of occurrence is disclosed.

If an impairment loss occurs on the Company's fixed assets due to deterioration in the business environment or a decline in profitability, this could have a significant impact on financial condition and business results. This is listed as a significant risk in the risk catalog in the Annual Securities Report, but it is not included among the risks described in detail as key risks, and no specific evaluation of impact or likelihood of occurrence is disclosed.