SEIKO GROUP CORPORATION

Costs related to quality issues and product liability, such as product recalls and compensation claims, may increase, and given the direct link to brand image damage risk, the Group considers this one of its most important risks. Responding to changes in the social environment, such as tightening legal regulations concerning product accidents, is also necessary, and wide-ranging quality control initiatives are being implemented across all manufacturing sites.

Should an unexpected leak of personal information or confidential information occur, this could damage social trust and result in substantial costs, affecting consolidated business results, and is also considered to carry a high risk of damaging brand image. While measures to prevent information leaks are being implemented through the establishment of internal regulations and employee training, it is difficult to completely eliminate all possible scenarios, and wide-ranging information security measures are continuously being implemented.

As the Group handles products directly linked to personal consumption, such as watches, clocks, and high-end jewelry, apparel, and accessories, domestic and overseas economic trends and fluctuations in personal consumption have a strong impact on consolidated business results. Products are sold in more than 130 countries and regions worldwide, meaning some impact is highly likely to occur at all times, while geographic diversification also serves to mitigate this risk.

Within the Watch Business, the EVS Business has a high degree of dependence on specific suppliers for procurement, and changes in trading terms with such suppliers could have a significant impact on the EVS Business's performance. Should the risk of supplier concentration materialize, securing alternative suppliers may become difficult, potentially disrupting production and sales activities.

The DS Business, which handles digital products, electronic components for automobiles, and other items, operates in a market environment characterized by rapid new technology development and mass production, as well as intense price competition. A delayed response to changes in the market environment could have a significant impact on business results. The Group is addressing this through the promotion of a shift toward higher value-added, higher profitability products and services under the 8th Medium-Term Management Plan "SMILE145".

The EVS Business and DS Business have manufacturing sites in Singapore, Malaysia, Thailand, and China, and changes in social conditions in these regions due to political, economic, and other factors could significantly affect production activities. As a risk mitigation measure, each production line is generally configured to operate across multiple regions, including Japan.

As the EVS Business and DS Business conduct operations targeting overseas markets, they are affected by exchange rate fluctuations impacting product prices and procurement costs, as well as by the yen conversion of the profit/loss and assets of overseas subsidiaries. In particular, fluctuations in the yen's exchange rate against the US dollar, euro, and other currencies may affect business results and financial condition, including through the foreign currency translation adjustment account within net assets.

Should shortages or price increases occur in energy sources such as crude oil and electricity, or in raw materials, due to changes in the supply-demand environment, this could disrupt manufacturing activities and increase manufacturing costs, thereby affecting business results. For certain raw materials, the Group monitors market prices while maintaining higher inventory levels as necessary to avoid the impact of short-term fluctuations.

Should domestic and overseas manufacturing sites and other facilities be damaged by natural disasters such as earthquakes and typhoons, or by outbreaks of infectious diseases such as viruses, this could result in production interruptions and disruptions to sales, logistics, and procurement functions, affecting business results. Action plans prioritizing the safety of employees and others have been established for such occurrences, and risks affecting the safety and health of employees and others are considered an important medium-term risk.

Internal education to ensure compliance with laws and regulations in each country is conducted across all businesses and Group companies, but the risk of some form of compliance violation occurring cannot be completely eliminated. As compliance violations are highly likely to directly damage brand image, the Group continues to promote legal compliance education and instill the importance of brand image across the entire Group.