A&D HOLON Holdings Company, Limited

Due to strengthened economic security policies by various countries against the backdrop of the Russia-Ukraine situation, US-China relations, the Taiwan situation, and other factors, the Group, which has manufacturing and sales bases globally, is required to respond to sanctions and legal regulations. Inadequate response could result in loss of brand credibility, decreased sales, and deteriorated earnings, as well as threats to employee safety and held assets, potentially hindering business continuity. The Group has established a regular monitoring system through each site and built a rapid initial response system based on the Crisis Management Regulations.

The increasing sophistication and advancement of cyberattacks has heightened the risk of unauthorized access causing malfunction or shutdown of business systems and leakage of confidential information. If such incidents occur, they could lead to loss of public trust, disruption and stagnation of business activities, and compensation costs to business partners, potentially affecting business continuity. As countermeasures, the Group has implemented security software, strengthened data backups, and raised employee awareness, while also stipulating investigation and disclosure management systems for information leaks in the Crisis Management Regulations.

Strengthened greenhouse gas emission regulations and the introduction of carbon pricing are envisioned as specific risks. Delayed response could result in loss of public trust, suspension of transactions, and depressed share price, potentially affecting business performance and financial condition. Countermeasures are being promoted based on the Group's sustainability initiatives.

Natural disasters such as earthquakes, large typhoons, and floods, as well as large-scale accidents such as fires, could damage business sites, disable information systems, and disrupt the supply chain, potentially preventing the continuity of business activities and adversely affecting performance. In addition to formulating disaster manuals, conducting regular evacuation drills, and introducing a safety confirmation system, the Group has formulated a BCP and continuously reviews countermeasures from both hardware and software perspectives.

In addition to various domestic and international legal regulations, laws regarding acts obstructing fair competition and bribery prevention are becoming stricter. Insufficient compliance or inadequate response to changes could restrict business activities. If a legal violation occurs, it could result in losses from criminal penalties, surcharges, and civil lawsuits, administrative dispositions such as business suspension, and loss of public trust, potentially affecting business performance and financial condition. Under the "A&D HOLON Group Code of Ethics" and "Compliance Regulations," the Group is promoting system development through the appointment of a compliance officer and the establishment of a Compliance Committee.

As the Group operates globally, sharp fluctuations in exchange rates affect the translation of foreign currency-denominated receivables and payables as well as net sales and profit/loss, and also pose a risk of fluctuation in the yen-translated amounts of overseas consolidated subsidiaries' financial statements. Rising interest rates may also affect profit/loss. The Group strives to mitigate these impacts by reviewing foreign currency-denominated import/export terms and reducing external borrowings through group financing.

Increasing difficulty in recruitment due to population decline may make it difficult to secure personnel with advanced technical and specialized knowledge, potentially hindering future growth and reducing competitiveness. In addition, if industrial accidents, health impairment, harassment, or similar issues occur, they could lead to deteriorated work performance, incurred workers' compensation costs, and damaged brand value, adversely affecting business performance and financial condition. The Group is working to combine diverse recruitment methods, promote human capital management, and continuously improve the working environment through the Health and Safety Committee.

As the Group provides a wide range of products and services, from medical and health equipment to automotive and aerospace, defects in products or services, inspection deficiencies, or large-scale product accidents could result in cost burdens such as large-scale recalls and damages, as well as risks of decreased sales and damaged brand value due to loss of public trust. In accordance with quality manuals compliant with international quality management standards such as ISO9001, ISO13485, and AS9100, the Group has established a quality management system spanning design, manufacturing, and service provision, striving to minimize safety risks.

Although supply chain disruptions, such as soaring prices and difficulty obtaining raw materials including semiconductors, are tending to subside, some raw materials continue to experience extended delivery times and persistently high prices, which could lead to decreased sales, deteriorated earnings, and impacts on business continuity. As countermeasures, the Group is localizing parts procurement, securing safety stock levels, arranging advance orders for long-lead-time parts, and building a system for design changes to more readily available parts.