Political, Regulatory and Foreign Exchange Risks Associated with Overseas Expansion

「Factors reducing profit, including the impact of North American tariffs and material inflation arising from the situation in the Middle East and China's rare-earth regulations」

「The business environment surrounding the Group has been significantly affected by developments concerning US trade policy, soaring raw material prices caused by geopolitical tensions in the Middle East, and logistics uncertainty, amid the urgent need to accelerate electrification and autonomous-driving technologies and address the transition to a decarbonized society.」

「During the full-year consolidated cumulative period for the fiscal year ending March 2026, we recorded a foreign exchange gain of ¥597 million as non-operating income because the yen depreciated against foreign currencies. This mainly arose from translating the foreign-currency-denominated assets held by the company at the fiscal year-end exchange rate.」

「Although the decline in operating profit was a factor behind the decrease in ordinary profit, the narrower range of yen appreciation this year compared with the previous year generated valuation translation gains on the Company's foreign-currency-denominated assets as the difference, resulting in an increase in ordinary profit.」

「Foreign exchange losses － 197,428」

「Ordinary profit and interim net income attributable to owners of the parent declined because the stronger yen generated non-operating foreign exchange valuation losses on the Company's foreign-currency-denominated assets.」

「The difference between ordinary profit and operating profit arose because the weaker yen generated a non-operating profit effect on funds held in foreign currencies, as the Company conducts global operations using internally generated funds.」

「Foreign exchange gains 376,603 619,949」

「Ordinary profit increased by ¥468 million from the same quarter of the previous year to ¥1,302 million, up 56.1%, as operating losses narrowed and the prevailing exchange rate at the end of the first quarter moved toward a weaker yen compared with the end of the previous fiscal year, causing valuation translation gains on foreign-currency-denominated assets to shift toward positive non-operating income, among other factors.」

「Ordinary profit was ¥1,572 million, down ¥1,862 million, or 54.2%, from the previous fiscal year. The decline was greater than the decrease in operating profit because foreign exchange movements, particularly the depreciation of the Indonesian rupiah against the US dollar, exceeded the impact in the previous year and shifted toward non-operating losses.」

「Although there was no significant change in the production or sales volumes of the Company's major customers, the partial pass-through of higher steel prices into selling prices and the weaker yen contributed to net sales of ¥9,105 million, up 18.2% year on year.」

「As a result, the exchange rate at the end of the second quarter had moved sharply toward a weaker yen compared with the end of the previous fiscal year. This caused the valuation translation gain on internally funded assets to make a significant contribution to non-operating income, producing an approximately ¥1.3 billion increase in profit and contributing to the increase in ordinary profit.」

「As the exchange rate at the end of the first quarter moved substantially toward a weaker yen compared with the end of the previous fiscal year, the valuation translation gain on the portion funded with internal funds made a significant contribution of approximately ¥900 million to the increase in non-operating income. This increase in profit exceeded the operating loss and led to the increase in ordinary income reported this time.」

「[China] Net sales were ¥7.702 billion, up 7.3% from the same quarter of the previous year, due to foreign exchange movements and other factors, but」

「Foreign exchange loss 52,969 212,912」

「Foreign exchange loss 155,363 140,508」

「Foreign-exchange losses」

「Although sales in Asia and China were strong, net sales from overseas operations as a whole declined from the same quarter of the previous year due to lower demand for control cables in North America and the impact of foreign currency translation.」

「Foreign exchange loss － 155,363」

「The main factor behind the decline in profit was a ¥276 million foreign exchange gain or loss.」

「[Asia] Net sales were ¥10.149 billion, down 3.4% year on year, and operating income was ¥357 million, down 42.4%, due to higher steel prices, foreign exchange movements and other factors.」

「Operating income decreased by ¥613 million from the same quarter of the previous year, or 26.3%, to ¥1.715 billion, due to lower net sales, fluctuations in steel prices, the weaker Indonesian rupiah and the impact of tariffs in North America, among other factors.」

「[North America] In addition to lower demand for control cables and the impact of the stronger yen on foreign-currency translation, revenue was ¥2,134 million, down 11.8% year on year, and operating income was ¥0 million, down 99.7%.」

「Foreign-currency borrowings with variable interest rates are exposed to foreign exchange and interest rate fluctuation risk. To avoid these risks and fix the principal and interest payments, the company uses derivatives, specifically interest rate and currency swap transactions, as hedging instruments.」

「[North America] Despite the impact of the weaker yen on foreign-currency translation and other factors, lower customer production volumes resulted in revenue of ¥6,340 million, down 8.4% year on year, and operating income of ¥12 million, down 97.0%.」

「[North America] Despite the impact of the weaker yen on foreign-currency translation and other factors, lower customer production volumes resulted in revenue of ¥4,368 million, down 5.7% year on year, and operating income of ¥47 million, down 83.1%.」

「Net sales for the consolidated fiscal year decreased by approximately ¥3.1 billion due to the impact of translating the financial statements of overseas subsidiaries at the stronger yen. Net sales therefore decreased by ¥2.039 billion from the previous consolidated fiscal year, or 2.4%, to ¥81.5 billion.」

「Under these circumstances, net sales for the first nine months of the fiscal year decreased by approximately ¥2.9 billion due to the impact of translating the financial statements of overseas subsidiaries at the stronger yen. Net sales therefore decreased by ¥2.834 billion from the same quarter of the previous year, or 4.5%, to ¥60.778 billion.」

「Under these circumstances, net sales for the first six months of the fiscal year increased by approximately ¥400 million due to higher sales volumes, but decreased by approximately ¥2.2 billion due to the impact of translating the financial statements of overseas subsidiaries at the stronger yen. Net sales therefore decreased by ¥1.844 billion from the same quarter of the previous year, or 4.5%, to ¥39.298 billion.」

「Net sales were ¥19.428 billion, down 5.4% from the same quarter of the previous year, mainly due to the Kumamoto earthquake and the stronger yen. Ordinary loss was ¥58 million, compared with ordinary income of ¥76 million in the same quarter of the previous year, mainly due to a ¥606 million foreign exchange loss. Net loss attributable to owners of the parent was ¥48 million, compared with net income of ¥36 million in the same quarter of the previous year.」

「Expansion into these overseas markets entails risks arising from political, economic and social disruption, among other factors, and these events may adversely affect results and financial condition. The business may also be affected by various government regulations and the application of laws and regulations in each country where it operates. Because the consolidated financial statements are presented in Japanese yen, they are affected by foreign exchange movements.」