The Group recognizes the following major items as possible risk factors in its operations, which may affect the management performance and financial position of the Group:
(1) Risks of dependency on particular overseas markets
Overseas sales account for more than 90% of the Group's total sales, with sales to China and Hong Kong accounting for the majority of overseas sales. There is a concern over economic and political changes, including competition with other knitting machine manufacturers, changes in monetary policies and tax systems, and trade friction with other regions in this market, which could lead to a decline in orders, and thus affect the performance and financial position of the Group.
(2) Risks associated with fluctuations in currency exchange rates
Since the Group sells products worldwide, some transactions are conducted in denominations other than yen. Although the Group employs forward exchange contracts and other hedges to minimize foreign exchange risks, it is possible that sales activities may not be conducted as planned as a result of declining price competitiveness due to the rising value of the yen. Since such situations could easily occur, sharp fluctuations in exchange rates could affect the performance and financial position of the Group.
(3) Risks associated with credit and accounts receivable recovery
The Group conducts direct sales in the Chinese, Hong Kong and the European markets, which represent major markets in terms of the Group's global sales strategy. This enables the Group to implement comprehensive global sales and marketing strategies by properly managing customer credit to maintain a balance between receivables recovery risks and sales. As the role of the precise handling of credit in consolidated business operations gains even greater significance, performance, changes in credit standing and country risks of each customer could affect the performance and financial position of the Group.
(4) Risks associated with the protection of intellectual property rights
In some countries and regions, it is virtually impossible, or possible only to a limited extent, to completely protect the Group's proprietary technology and know-how in terms of its intellectual property rights due to a lack of awareness concerning legal compliance. Consequently, the Group may not be able to effectively prevent a third party from illegally using the Group's intellectual property rights and producing imitation products, and the accompanying deterioration in sales and price competition could affect the performance and financial position of the Group.
(5) Risks associated with overconcentration of production on a particular production site
The Group promotes efficiency by concentrating its product production in Wakayama Prefecture, where the Headquarters is located, to allow all operations, from development to manufacturing, to be integrated into one process. Therefore, natural disasters, such as a large earthquake in and around Wakayama Prefecture, which may involve a long halt in production, could affect the performance and financial position of the Group.
(6) Risks associated with social and institutional changes in business areas
The Group's deployment of business encompasses not only Japan but spans the entire world. Therefore, the areas where the Group conducts business pose the following inherent risks that could affect the performance and financial position of the Group.
- Stagnant demand resulting from deteriorating economic conditions
- Unforeseen changes in laws and regulations
- Social turmoil due to terrorism, war, political upheaval, deteriorating civil order, and other causes
- Natural disasters including earthquakes
(7) Risks associated with changes in consumer apparel spending and unseasonable weather
The Group's products are sold primarily to apparel and knitwear manufacturers in Japan and overseas. Moreover, department and discount store sales tend to be influenced by individual apparel preferences and fashion trends. Unseasonable weather events, such as heat waves and warm winters, coupled with damage caused by strong winds and flooding, constitute another major factor that could influence market trends in the apparel industry, and thus affect the performance and financial position of the Group.
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