KURODA PRECISION INDUSTRIES LTD.

For core products, sales destinations are concentrated in specific industries—ball screws and precision measuring instruments in the semiconductor manufacturing equipment and electronic device sectors, and die & mold systems in the automotive industry, among others. Economic fluctuations or technological innovation in these industries could significantly affect business results and financial condition. The Group is working to diversify its sales markets and strengthen its overseas sales structure, but additional risks may arise if the shift of production overseas accelerates beyond expectations.

Many of the Group's products are built-to-order according to customer-specific specifications, resulting in low inventory obsolescence risk; however, responding to the rapidly accelerating trend toward shorter delivery times remains a challenge. If the Group fails to grasp customer trends and secure a production system capable of short lead times, orders may decline, adversely affecting business results and financial condition. Ensuring flexibility in the production system remains an ongoing management issue.

The rapid advancement of technological capabilities in Asian countries is gradually eroding the Group's technological advantage. As product life cycles shorten, shortening development periods has become essential; if the Group fails to anticipate market changes and provide attractive new products in a timely manner, future growth and profitability may decline. Rapid response to changes in the industry and market is key to maintaining competitiveness.

The Group holds several affiliated companies for the purpose of diversifying its revenue base, but changes in the economic environment or unforeseen expenses may prevent results from meeting plans. In addition to the impact on consolidated results, there is a risk that bad debt losses on receivables from affiliated companies or impairment losses on shares of affiliated companies may be recognized in the non-consolidated financial statements. Performance management of each affiliated company is directly linked to financial soundness.

The Group holds tangible fixed assets and other assets, and applies impairment accounting to verify recoverability based on future cash flows. If projected future cash flows decrease due to changes in the future business environment, additional impairment losses may occur, affecting financial position and business results.

Because the Group adopts a production system of one product per plant and one industry per plant, if a large-scale earthquake, storm, or flood damage occurs in a region where a specific plant is located, there is a risk that production capacity for that product category or industry could be significantly reduced. While production concentration enhances efficiency, it also entails vulnerabilities in terms of business continuity planning (BCP).

The Group has overseas business locations in South Korea, China, Malaysia, the United Kingdom, Germany, and the United States, and is exposed to risks such as unexpected changes in laws and regulations, unfavorable political and economic factors, tax system changes, social disruption caused by terrorism or war, and exchange rate fluctuations. Should any of these events occur, they could adversely affect business results and financial condition.

In the manufacture of products requiring highly precise processing and measurement technology, the presence of engineers and skilled workers with many years of experience is essential; however, the succession of technology and skills is becoming increasingly difficult due to talented new graduates avoiding the manufacturing industry and the aging and retirement of employees. If succession does not proceed smoothly, it could adversely affect future growth as well as business results and financial condition.

Financial covenants are stipulated in commitment line agreements with financial institutions, and there is a possibility of breach if a decline in net assets due to business downturn exceeds a specified limit. In the event of a breach, the Group may lose the benefit of the term on its borrowings and be required to repay immediately, which could have a material impact on the Group's business results and financial position.

Changes in trade rules, such as additional U.S. tariffs and China's export restrictions on rare earths, may affect the Group's business results. As the Group operates globally, changes in trade regulations driven by geopolitical tensions pose a risk of directly impacting procurement costs and sales activities.