ASAHI INTECC CO., LTD.

The Group is subject to regulations in Japan (Act on Pharmaceuticals and Medical Devices, etc.), the EU (MDR/MDD), the United States (FD&C Act), and China (Regulations on the Supervision and Administration of Medical Devices). If approvals, permits, or registrations from regulatory authorities in any country are denied, revoked, or delayed, this could materially affect business performance. In the EU in particular, the transition from MDD to MDR is currently underway, and the risk of delays in conformity certification has become apparent. The Group addresses this through maintaining and establishing a QMS (Quality Management System) compliant with regulations in each country, but increased costs in response to tightening or changes in regulations are also anticipated.

In the fiscal year under review, consolidated net sales of PCI Guidewire amounted to ¥57,812 million, accounting for 48.2% of total consolidated net sales. Due to this high degree of dependence on a core product, fluctuations in demand, price declines, or intensifying competition for this product have a direct and significant impact on overall business performance. If a substitute product emerges through technological innovation, or if competitors launch superior products, there is a risk that market share loss could lead to deteriorating business performance.

In the fiscal year under review, sales in China within the Medical Business amounted to ¥28,283 million, accounting for 23.6% of total consolidated net sales, making it a key market. Uncertainty is increasing amid the intensification of US-China trade friction and the Chinese government's promotion of domestic preference policies and Volume-Based Procurement (VBP), and changes in policy or regulation could lead to declines in selling prices or restrictions on market access. The Group positions the Chinese market as an important market with high growth potential over the medium to long term, but hedging measures against changes in the political situation are limited.

Mass production is in principle concentrated among three companies: ASAHI INTECC THAILAND CO.,LTD. (Thailand), ASAHI INTECC HANOI CO.,LTD. (Vietnam), and TOYOFLEX CEBU CORPORATION (the Philippines). If operations decline or become impossible due to natural disasters such as floods or earthquakes, changes in political or economic conditions, labor shortages, or rising wages, this would seriously disrupt product supply. The Group is working to diversify this risk through the continuous transfer of production from Thailand to Vietnam and the establishment of a medical device production system at the Philippine site, but regional risk remains since all three sites are concentrated in Southeast Asia and the Philippines.

In the fiscal year under review, overseas sales accounted for 84.3% of consolidated net sales, with the majority denominated in US dollars. While sales are mainly received in US dollars, transactions with production subsidiaries in Thailand and Vietnam are denominated in yen, creating a structure in which profits are squeezed when yen appreciation against the US dollar and Thai baht appreciation occur simultaneously. In situations where the US dollar and Thai baht do not move in tandem, the advantages and disadvantages of exchange rate fluctuations do not offset each other, and sharp exchange rate movements directly affect business performance through foreign exchange gains or losses.

In Japan, reductions in insurance reimbursement prices have been implemented biennially since April 2002, and healthcare system reforms have continued, including the introduction of a comprehensive medical fee payment system at specific function hospitals in April 2003. Globally as well, cost-containment measures in healthcare are being promoted in various countries, and if large-scale reforms exceeding expectations are implemented, this could materially affect business performance through declines in selling prices. The Group supplies products to 121 countries and regions worldwide, exposing it to the risk of simultaneous system changes in multiple countries.

The Group handles medical devices that involve advanced technology relating to human life, and the possibility of defective products arising from unusual causes or improper handling in clinical settings cannot be entirely ruled out. If a medical accident occurs, this could lead to product liability litigation or product recall obligations under medical device regulations. The Group has established a thorough internal quality control system, but if these risks materialize, in addition to the impact on business performance, damage to the brand is also anticipated.

The pace of technological change in the medical device market is extremely rapid, and if new technologies that revolutionize current examination and treatment methods are developed, or if competitors introduce highly superior or innovative products, there is a risk that the Group's products could become obsolete, leading to a decline in market share. The Group, as a research and development-oriented company, focuses on R&D activities, but a delayed response would have a significant impact on business performance. In the industrial equipment field as well, if Korean and Chinese manufacturers develop the capability to supply products of comparable quality at lower prices, competitiveness could decline.

The Group carries out corporate acquisitions to accelerate business growth and establish market advantage, conducting due diligence in advance. However, sudden changes in the business environment after an acquisition or unforeseen circumstances may make it difficult to recover the invested funds. If impairment of goodwill or other intangible fixed assets becomes necessary, this could have a material impact on business performance and financial condition. In addition, impairment risk also arises for fixed assets and investment assets if the initially expected growth is not realized.

The Group utilizes IT systems across its overall business operations. If IT systems are shut down for an extended period due to unauthorized access, cyberattacks, natural disasters, or other unforeseen events, or if personal information or confidential information is leaked, this would affect the Group's financial position and business results. The Group works to reduce these risks through measures against external attacks such as computer virus countermeasures and employee training on security compliance, but complete protection remains difficult given the increasing sophistication and complexity of cyberattacks.