Business Risks and Challenges to Address

Business Risks

The following are the major Group business and other risk-related issues which are deemed to have the potential to seriously impact investor decision-making. Please be aware that the following issues were decided upon by the Group and are subject to uncertainty; actual results may differ.

1.Sales Price

Currently, the amount of direct price competition has been limited, due to an ongoing trade war between China and the United States which has imposed tariffs on Chinese products, as well as due to the differences in quality between Kuriyama products and products from Asia; however, it is quite possible that the level of competition will intensify as the level of quality of Asian products improves.

2.Public Investment Trends

In our Sports Facility and Construction Product Business, Kuriyama Group handles products and materials for roads, bridges, port facilities, building construction, urban scenery, and indoor and outdoor sports facilities. Of these, roads, civil engineering projects and other public investments make up 20-30% of our business in this area; thus, trends in public investment are likely to impact the business performance of the Group.

3.Raw Materials Price

The price of the resin which serves as the primary raw material in the plastic hoses Kuriyama Group manufactures is affected by changes in the price of crude oil. When procuring raw materials, Kuriyama Group makes sure to adequately investigate options for obtaining a stable supply and, based on this as well as the economic environment, market situation and other factors, engages in price negotiations with suppliers and works to reduce costs by ordering large quantities/in-bulk on an annual basis. Nevertheless, the variability in the price of resin and other raw materials is likely to affect Kuriyama Group's business performance. Within the Group we are working to dampen the impact of higher raw materials costs via such means as improving productivity and passing the costs on to the customer; however, there is no guarantee that any such measure will have the desired outcome.

4.Inventory Needs

Kuriyama Group performs manufacturing and purchasing in anticipation of customer orders in order to ensure we have a full product line-up to facilitate our effectiveness as a trading company, and this means that we must maintain our inventory at a given level. Thus, in the event that the Group is wrong about the level of demand for a product, our business performance will be impacted as a result of either missing sales opportunities due to insufficient supply, being forced to sell at a discounted price in order to get rid of excess supply, or, depending on the circumstances, writing off loss on the valuation or abandonment of products.

5.Distribution System

Consolidated subsidiary Kuriyama Corporation has a 3PL agreement in place with an external logistics company for distribution services, thereby streamlining delivery through the integration of inventory and distribution functions; however, if the distribution center were to be damaged or otherwise rendered inoperable, it would be likely to impact the business performance and financial situation of Kuriyama Group. In addition, at overseas business facilities, the Group expedites delivery through the use of carefully managed delivery services, including hiring delivery trucks to make numerous daily product deliveries directly to wholesalers and users, as well as making use of delivery companies to accommodate specific volume and size needs. The use of such delivery systems helps us to differentiate ourselves from our competitors, but, at the same time, they can also contribute to higher distribution costs for overseas business facilities.

6.Importance of Overseas Business

Nearly all of the rubber, plastic and metal industrial-use hoses and other products Kuriyama Group manufactures in North America, Europe and Central and South America are sold to the local market. For the current consolidated accounting fiscal year, overseas sales made up 56.7% of all Kuriyama Group sales, but these were almost exclusively to the local markets, thereby further concentrating operating profits in the same geographical area. Because Kuriyama Group continues to pursue a policy of active business development overseas, the business performance of the Group faces risks from currency exchange fluctuations; local business cycles, consumer behavior and economic trends; changes in local political and social conditions; regulatory requirements; local customs and norms; and other unpredictable factors. Additionally, some Kuriyama Group customers in Japan are moving their production facilities overseas to China and other parts of Asia. For these customers, we mostly export products from Japan; however, because of their pressing need to lower costs, if we do not establish a local supply system, secure high-quality suppliers and steadily reduce purchasing costs, the Group's business performance is likely to be negatively impacted.

7.Sales Channels

Most Kuriyama Group products are sold to customers via local distributors. Although the Group is not overly dependent on any specific distributors, because they also handle our competitors' products, any changes in the distributors' purchasing policies can impact the Group's business performance.

8.Impact of Exchange Rate Fluctuation

Most Kuriyama Group products are sold to customers via local distributors. Although the Group is not overly dependent on any specific distributors, because they also handle our competitors' products, any changes in the distributors' purchasing policies can impact the Group's business performance.

9.Regulatory Requirements

Consolidated subsidiary Kuriyama Corporation not only sells products but also provides construction/installation services; hence, it must comply with the Building Standards Act, Construction Business Act and other laws and regulations. In the unlikely event that, for whatever reason, a Group company is subject to administrative sanctions by the Ministry of Land, Infrastructure, Transport and Tourism or some other competent authority, this has the potential to negatively impact the Group's business performance. The table below lists the major permits, licenses, registrations, etc., that we have obtained.

Date Obtained Permits/Licenses Recipient Permit/License Details Period of Validity
2017/6/1 Special Construction Business
(license)
Kuriyama Corporation License approved by the Minister of Land, Infrastructure, Transport and Tourism (Special-29) No. 24558: Architectural and construction business; Civil engineering business 'From June 19, 2017 to June 18, 2022. After this, subject to renewal every five years.
Same as above Ordinary Construction Business
(license)
Same as above License approved by the Minister of Land, Infrastructure, Transport and Tourism (Ordinary-29) No. 24558: Plastering business; Tiling, brick and block work; Waterproofing business; Carpentry business; Masonry business; Paving business; Interior finishing business; Scaffolding and excavation business; Steel structure contracting business; Painting business; Roofing business; Sheet metal business Same as above
2017/7/1 Same as above Same as above License approved by the Minister of Land, Infrastructure, Transport and Tourism (Ordinary-29) No. 24558: Electrical contracting business From July 18, 2017 to July 17, 2022. After this, subject to renewal every five years.

10.Changes in Accounting/Taxation System

'Consolidated subsidiary Kuriyama Corporation not only sells products but also provides construction/installation services; hence, it must comply with the Building Standards Act, Construction Business Act and other laws and regulations. In the unlikely event that, for whatever reason, a Group company is subject to administrative sanctions by the Ministry of Land, Infrastructure, Transport and Tourism or some other competent authority, this has the potential to negatively impact the Group's business performance. The table below lists the major permits, licenses, registrations, etc., that we have obtained.

11.Natural Disasters, Epidemics and Other Hazards

Kuriyama Group conducts business activities on a global scale. As a result, unanticipated natural disasters, changes in the political and economic landscape, the spread of infectious/communicable diseases, legal and regulatory changes, terrorism, war and other social upheaval, etc., all run the risk of negatively impacting the financial situation and business performance of the Group. In order to counter these risks, we engage in business continuity planning (BCP) to manage crisis situations and minimize interruption due to natural disasters and other risks.

Challenges to Address

In order to further improve Kuriyama Group earning capacity and business quality, we are fully focused on addressing the following priority challenges.

Asia

Industrial Products
  1. Strengthen the development and sale of exhaust emissions regulation-related products (urea quality sensors and urea SCR modules, tanks, etc.) for the construction and agricultural machinery truck markets.
  2. Adapt to increasing customer globalization. (Strengthen overseas local purchasing capacity and product supply capacity)
  3. As a manufacturer, provide an even higher level of quality and cultivate a greater capacity for quickly responding to customer needs.
  4. Bolster research and development of innovative, next-generation products by SUN-A Corporation.
Sports Facility & Construction Products
  1. Bolster sales activity for such products as "SUPERMATERIALS" (large ceramic tiles) original-brand products for large-scale commercial facilities.
  2. Bolster sales of original-brand products promoting barrier-free and safe urban environments, such as "ACETONE" ( non-slip and braille tiles) for railway facilities, pedestrian walkways and bridges, station plazas and other areas.
  3. Foster stronger cooperation with Chinese affiliates and partner companies in order to boost cost-competitiveness via low-cost operations.
  4. Capture more of the construction investment connected with Expo 2025-related infrastructure development and other projects.
  5. Bolster sales of construction materials for new sports facility construction and renovation, such as educational facility gymnasiums.
  6. Develop and enhance construction management and quality control systems.
Other
  1. Increase recognition and sales domestically for MONTURA (Italian sports apparel).
  2. Bolster development of dust control mats.

North American Business

  1. Capitalize on the speed and accuracy of order acceptance and delivery to further increase our share of the hose market.
  2. Foster greater synergy with European business and accelerate the pace of global expansion.
  3. Improve inventory control and logistics costs.
  4. Strengthen research and development technology and systems.
  5. Establish new product development systems, and strengthen quality control and manufacturing/distribution capacity.
  6. Improve IT-related responsiveness to customer needs and the value added through assembly and other functions.
  7. Use social media to improve visibility in the market.

European Business

  1. Further enhance production efficiency, and boost earning capacity through greater production capacity.
  2. Make deeper inroads into the fire-fighting, mining and petroleum industries.
  3. Pursue new customer development in North and South America, Africa, Asia and the Middle East.
  4. Strengthen efforts aimed at improving quality, and accelerate the pace of new product and application development.
  5. Pursue maximum synergy with North American business in the context of sales and manufacturing technology.
  6. Pursue the development of a European holding company structure, and adapt distribution channels and expand distribution bases in the European market accordingly.