Citizen Watch Co., Ltd.

In the watch business, competition is intensifying with domestic competing manufacturers, Swiss luxury watch manufacturers, Chinese mass-market manufacturers, and smartwatch manufacturers, and there is also inherent competition from substitute products such as smartphones that offer timekeeping functions. In the movement business, the shrinking trend of the analog quartz market and unit price declines due to the rise of Chinese manufacturers are progressing, creating the risk of volume declines and share loss. In particular, the shrinking fashion watch market and the expanding smartwatch market constitute structural headwinds.

The overseas sales ratio was 74.6% (¥236,409 million) in FY2025 (ended March 2025) and is trending at a high level of 77.0% (¥266,964 million) in FY2026 (ending March 2026), with sales conducted worldwide, centered on the Americas, Asia, and Europe. Changes in economic and consumption trends and in political and economic social conditions in each region could directly affect business performance. There is a risk that sudden changes in demand or tightened regulations in specific regions could significantly affect earnings.

With the overseas sales ratio exceeding 77%, foreign exchange fluctuations directly affect business performance. While hedging is implemented through forward exchange contracts and currency options, and overseas production is being expanded and strengthened, complete avoidance through hedging is difficult. In a yen appreciation phase, there is a risk that the yen-converted amount of overseas sales will decrease, putting pressure on earnings.

Rising energy prices and raw material costs due to escalating tensions in the Middle East and other regions, as well as disruptions to logistics and supply chains, could affect production activities and business performance. Prolonged rare earth export restrictions and similar measures also pose a risk of adversely affecting production costs and procurement stability. For the Citizen Group, which operates globally, heightened geopolitical tensions can have cross-cutting effects on multiple businesses.

China is one of the Group's major production bases, and if troubles occur locally or regulations restricting production are implemented, it could disrupt the Group's overall production and supply system. A significant appreciation of the renminbi could adversely affect business performance through rising manufacturing costs. The concentration of production in China is also linked to geopolitical risk, raising concerns about the compound materialization of risks.

In the Devices Business, the pace of technological innovation is fast, and the frequency of changes in customer requirements and introduction of new products and services is high, so declines in sales prices due to obsolescence of existing products and services could significantly affect business performance. Precision machined parts are affected by trends in technological innovation among automobile manufacturers and smartphone manufacturers, and in opto-devices there is a risk that the termination of patent licensing agreements could disrupt business continuity. Intensifying competition with electronic device manufacturers in China and elsewhere is also increasing downward pressure on sales prices.

Amid a global increase in cyberattacks, unauthorized external access or disruptions to information system functions could have a significant impact on business activities, performance, and financial condition. The Group holds and manages customers' personal information and confidential information related to technology, research and development, manufacturing, and sales; in the event of an information leak, in addition to the risk of damages claims and litigation, it could lead to reputational and credibility damage. While efforts are being made to strengthen information security, there are limits to responding to unforeseen events.

Because the Machine Tools Business is linked to capital investment demand, a decline in demand due to economic fluctuations directly affects business performance. A sharp rise in natural resource and raw material prices is a cost-increasing factor, and important changes in regulations or laws in the countries and regions where the business operates could also adversely affect performance. High sensitivity to the business cycle is a structural risk that increases earnings volatility.

If the fair value of assets declines significantly or the profitability of a business deteriorates, the application of impairment accounting could result in impairment losses on fixed assets, affecting business performance and financial condition. Given the Group's structure of diversified business operations and numerous overseas locations, there is a risk that deteriorating performance in a specific business or region could trigger impairment. The occurrence of impairment losses could temporarily and significantly worsen financial indicators.

The Group is working to strengthen its business foundation through M&A and business alliances, but even with careful due diligence and consideration of target companies, if previously unrecognized liabilities come to light or business development does not proceed as planned, this could have a material effect on operating results and financial condition. In addition, if financial covenants under syndicated loan agreements or commitment line agreements are breached, there is a risk of demands for early repayment of borrowings, which could affect financial condition. These risks are directly linked to the feasibility of executing the Group's growth strategy.