PARKER CORPORATION

The Group manufactures and sells products in Asia, North America, and Europe, and economic downturns or business interruptions and demand contraction caused by natural disasters in its sales regions could adversely affect its business performance and financial condition. The Group has a diverse customer base spanning automotive, electrical equipment, chemicals, steel, electronics, food, and other industries, and seeks to reduce risk by avoiding dependence on any specific industry or region.

As the Group operates globally, translating local-currency-denominated sales, expenses, assets, and liabilities into yen exposes it to the effects of exchange rate fluctuations, and rising material procurement and manufacturing costs could reduce profit margins and price competitiveness. The Group works to manage and mitigate this risk through forward foreign exchange contracts under its derivatives transaction regulations, as well as through fund procurement in countries with low exchange rate risk, including via the parent company.

As the Group expands into overseas markets, the number of competitors is increasing, and if competitors are able to supply lower-cost products, intense price competition could arise, raising concerns about declining sales and adverse effects on business performance and financial condition. In addition, although the Group is strengthening its R&D division, there is a risk that it may not be able to develop new products and technologies commensurate with its investment.

Although products are manufactured in accordance with global quality control standards, there is no guarantee that all products will be free of defects or that claims will never occur, and if large-scale claims or product liability arise, the Group could incur substantial costs and suffer damage to its corporate reputation. The Group has product liability insurance, but there is no guarantee that it will sufficiently cover the amount of any liability.

Under the spirit of "a company is its people," the Group focuses on securing and developing capable engineers and key personnel, but if it is unable to do so, this could lead to a decline in technological capability and competitiveness, adversely affecting business performance and financial condition. As the Group expands globally, competition to acquire talented personnel in each region is intensifying, which is also inherent in this risk.

The Group is subject to various government regulations in each country in which it operates, including those related to patents, foreign exchange controls, the environment, and recycling, and failure to comply with these could result in restrictions on business activities and increased costs of regulatory compliance. There is also a risk that future tightening of regulations or the introduction of new laws and regulations could further increase compliance costs.

As the Group operates business sites globally, it is exposed to country risk arising from unstable social conditions such as war and terrorism in the countries where its sites are located or in related countries, and if such risks materialize, they could adversely affect business performance and financial condition. Risk diversification through reduced dependence on specific regions functions as a countermeasure, but complete avoidance is difficult.

Regarding fixed assets such as land and buildings held by the Group, if their market value declines significantly or business losses continue, it may become necessary to recognize impairment losses, which could adversely affect business performance and financial condition. As the Group operates production sites globally, deterioration in real estate market conditions or the business environment in each region could be a factor that increases impairment risk.

If a large-scale disaster or infectious disease outbreak exceeding expectations, such as the Great East Japan Earthquake or COVID-19, occurs, business performance could be directly or indirectly and adversely affected through restrictions on business activities, supply chain disruptions, power supply shortages, and production adjustments by major users due to lockdowns. This, combined with a decline in consumer spending, could become a compound factor in the deterioration of business performance.