SEED CO.,LTD.

In Japan, the contact lens market is contracting due to population decline, aging, and lifestyle changes, and this contraction may outpace demand-increasing factors such as the rising myopia rate. Concentration on specific business partners and policy changes by major clients also pose risks that directly affect earnings. As countermeasures, the Company is strengthening overseas expansion, expanding its multifocal lens lineup, focusing on non-commodity areas (Orthokeratology, smart contact lenses, etc.), and diversifying business partners.

There is a risk of losses arising from erroneous investment decisions, and a significant decline in sales and profits or impairment recognition due to insufficient control over overseas subsidiaries. If problems arise in the management of subsidiaries, this could lead to a decline in the competitiveness of the group as a whole. The Company is addressing this through the establishment of investment criteria, strengthened control over domestic and overseas subsidiaries by a specialized department, and clarification of roles within the group.

Sharp fluctuations in foreign exchange rates affect imports from overseas and foreign-currency-denominated settlements, while significant increases in interest rates lead to higher funding costs. Since the contact lens business operates globally, foreign currency exposure is substantial. The Company mitigates fluctuation risk by balancing import and export volumes, executing forward exchange contracts, and maintaining a mix of fixed and floating interest rates.

There is a possibility that impairment losses may be recognized on tangible fixed assets, goodwill, and intangible assets if profitability declines due to changes in the business environment or other factors. Given the business structure with substantial investment in overseas subsidiaries and capital expenditures, the impact directly affects financial figures. The Company is working to reduce this risk through the formulation and implementation of investment criteria regulations and by improving profitability.

There is a risk that the production and logistics capacity for contact lenses may decline due to natural disasters such as large-scale earthquakes, typhoons, floods, and fires, or the outbreak of infectious diseases at the Kounosu Research Institute. In the event of an infectious disease outbreak, demand decline due to voluntary outings restrictions and store closures, as well as suspension of shipments to overseas locations, is also anticipated. The Company addresses this through strengthening its BCP, diversifying manufacturing buildings, introducing emergency backup power generators, and diversifying risk by increasing the number of countries in which it operates overseas.

Geopolitical risks in Europe, Asia, and the Middle East, as well as changes in the political and economic situation in countries where the Company operates overseas, may impact the supply chain and make it difficult to continue business operations. Delays in responding to revisions of overseas laws and regulations may also affect the maintenance of licenses and permits. The Company addresses this through information gathering by the International Business Division and Regulatory Affairs Department, utilization of local partners, securing alternative procurement sources, and considering the transfer of production to domestic manufacturing.

If inventory becomes stagnant for a long period due to changes in the sales environment, there is a possibility that inventory valuation losses may be recognized upon expiration, or disposal losses may occur. On the other hand, stock shortages due to insufficient production volume also pose a risk of prompting brand switching. The Company strives to maintain appropriate inventory levels through expiration date management by parameter, appropriate ordering based on shipment volumes, and expansion of manufacturing and production equipment.

There is a risk that confidential information, such as personal information and R&D information, may be leaked due to cyberattacks, unauthorized internal access, or loss of information. In the event of a leak, in addition to the burden of responding, a significant decline in corporate trust is a concern. The Company manages this risk through obtaining and maintaining ISMS certification and the Privacy Mark, implementing access restrictions, encryption, and endpoint security measures, strengthening security through cloud storage, and thorough employee training.

In the event of unforeseen circumstances arising from external factors, procurement of materials and raw materials necessary for manufacturing may become difficult, and rising resource prices leading to higher energy and raw material costs also put pressure on earnings. Human rights issues within the supply chain also carry the risk of spreading to reputational risk. The Company addresses this by holding approximately 3 to 6 months' worth of materials and raw materials in inventory, promoting multiple sourcing, securing supply sources through collaboration with overseas subsidiaries, and formulating a human rights policy.

A shortage of personnel due to failure to secure the required number of hires or an increase in employees taking leave or retiring may affect business activities. Concerns also include an increase in re-employed workers due to the aging of employees, qualitative mismatches in skills, and deteriorating labor productivity due to declining employee motivation. The Company addresses this through promoting investment in labor-saving measures, securing diverse talent, work-life balance initiatives, establishing company-led daycare centers, and measures to improve employee engagement.