Business Risks

Below is a summary of risks that could affect the Ushio Group’s business performance, financial position, and cash flow adversely and materially. These are the risks identified by the Ushio Group (hereinafter, the “Group”) as of the date of submission of the Group’s Annual Securities Report (June 26, 2024). This is only a partial list and does not cover all the risks the Group faces.

Business Segment Risks

1. Industrial Processes Business Risks

In Industrial Processes business, we continue to invest in research and development to enhance the competitiveness of our products and services. This includes investments for new and expanded adoption of related products in growth areas such as the semiconductor packaging, printed circuit board and electronic device markets, and the EUV lithography mask inspection market. However, there is a risk that we may not achieve the expected results from our research and development investments in a sufficient or timely manner, or that competitors may outpace us in technological development. These factors could have a material impact on the Group's performance and financial condition.
Additionally, there is a risk that our profitability may decline due to the significant changes beyond our expectations in the demand for equipment incorporating our consumable products and the operational status of such equipment caused by economic trends in various countries and changes in the business environment in each business sector.
We will establish a system that enables us to quickly gather information on future technological trends, market environment changes and customer trends, and will respond flexibly to changes in our business structure and technological development trends.

2. Visual Imaging Business Risks

In Visual Imaging business, our clients include movie theaters, public facilities, corporations, amusement parks, and agencies. There is a risk that our clients may be unable to fulfill the terms of their contracts due to changes in market conditions accelerating the deterioration of our clients' financial health, which could have a material impact on the Group’s performance and financial condition.
In the medium to long term, significant structural changes in the industry, such as the enhancement and widespread adoption of streaming services for video content and changes in consumer behavior and consumption styles, could affect the sustainability of cinema chains. This could lead to significant changes in the demand for visual equipment, particularly projectors, which could have a material impact on the Group’s performance and financial condition.
Additionally, while the transition to solid-state light sources for cinema lamps is progressing, further advancements in innovative technologies beyond our expectations could also have a material impact on the Group's performance and financial condition.
Furthermore, there is a risk that our profitability may decline due to the significant changes beyond our expectations in the demand for and operational status of equipment incorporating our consumable products caused by economic trends in various countries and changes in the business environment in each business sector.

The Group will continuously update and respond flexibly to long-term demand forecasts for changes in the business environment, including technological advancements. Specifically, we will flexibly adjust our production and other systems to meet the demand forecasts. Additionally, we will focus on creating new businesses by leveraging our existing technologies and products to develop competitive products in new markets.

Common Business Segment Risks

Material Risks	Risk scenarios	Responses to risk
Supply chain	・Suspension of operations due to delays or interruptions in the supply of raw materials, parts, and/or purchased products due to the closure of suppliers and the tightening of laws and regulations in the country of origin. ・Rising costs caused by the depletion of resources and tight supply and demand, etc.	・Analyze the current situation for each part and clarify alternative and backup plans for the risks visualized. ・Formulate a procurement policy that includes centralized purchasing and distributed purchasing within the Group. ・In response to price hikes, create a system that allows us to assess appropriate prices and pass on costs to prices as appropriate.
Business continuity	・Sharp decline in sales due to restrictions on local business activities, etc. resulting from political confrontations with specific countries. ・Earthquakes, tsunamis, and volcanic eruptions resulting in human casualties and damage to factories, warehouses, offices, equipment, and systems, which also interrupts business operations.	・Promote the strengthening of business continuity initiatives from the perspective of geographically-optimized production and sales by cooperation between bases that leverage the strengths of each based on business direction information from each business department. ・Hold regular disaster prevention and initial response drills, BCP drills based on manuals, and regular company fire brigade drills, and renew stockpiles and disaster prevention equipment.
Overseas crisis management	・Wars, conflicts, political unrest may occur, adversely impacting the company's business.	・Start cooperation with overseas bases and build a system that can collect information on a regular basis. ・Organize matters that need to be addressed and determined, and establish reporting rules and information sharing lines.
Global personnel strategy	・There is a concern that we will not be able to hire personnel with specific expertise and skills, which will lead to stagnation of business growth and a decline in competitiveness as a company. ・Skills and know-how that employees have cultivated through their work are not passed down, causing a loss of productivity and competitiveness.	・Strengthen communication with HR departments and business departments at overseas bases to understand the current situation and identify problems. ・With the cooperation of business departments and specialists in technical fields, establish a global human resources strategy and personnel system, and implement measures.
Information security management	・Malicious attacks on IT systems such as internal fraud, unauthorized external access, exploitation of vulnerabilities, and malware infections may cause information leakage, modification or loss, or IT system outages, resulting in business losses, liability, and interruption of business activities.	・To disseminate the Ushio Group Information Security Policy, we will promote education and raise awareness according to the security level of each Group company. ・We will strengthen information security across the entire Group by introducing high detection rate tools and monitoring services to combat ransomware, such as endpoint detection and response (EDR) tools. ・We will conduct regular information security assessments to check the status of compliance with the Ushio Group Information Security Policy and identify issues.
Climate change measures	・Delays in disclosing information on climate change-related risks and Specific Activities in accordance with the TCFD. ・Failure to respond to requests from business partners and others to reduce CO₂ emissions, resulting in the cancellation of transactions and weakening of the company's image.	・Expand the content of information disclosure on climate change, which is an important item related to sustainability. ・Review the SBT target based on the 1.5°C scenario.