Mitsuchi Corporation

The proportion of automotive components in the Group's net sales reached 82.7% in the fiscal year under review, with sales concentrated among primary automotive parts manufacturers. The business structure is such that fluctuations in domestic and overseas automobile production volumes, changes in installation rates accompanying model changeovers, and changes in delivery prices directly affect operating results. Deterioration in the automotive industry's business conditions or changes in procurement policy by specific customers could have a significant impact on performance.

In the automotive parts industry, requests for price reductions from finished vehicle manufacturers have intensified particularly in recent years, and the Group also continues to receive ongoing price reduction requests from primary automotive parts manufacturers. While the Group is implementing permanent cost reduction measures such as cost reduction proposals at the design and prototyping stages and process changes through elimination of cutting processes, there is no guarantee that cost reductions will proceed as planned given continuing reduction requests even after the start of mass production. Failure to respond to price competition or loss of customers could affect operating results and financial condition.

The Group has manufacturing and sales bases in Thailand, the United States, China, and India (established in June 2025), and the overseas sales ratio reached 33.0% in the fiscal year under review. Unforeseeable risks are inherent, including trends in the automotive industry in the Asian and North American regions, changes in laws and regulations, changes in political and economic conditions, difficulty in securing human resources, changes in tax systems, and social disruptions such as terrorism and war. The materialization of these risks could affect operating results.

Transactions with overseas subsidiaries (Thai Mitchi Corporation Ltd., Mitsuchi Corporation of America, and Mitsuchi General Parts (Suzhou) Co., Ltd.) are denominated in a mix of dollars and yen, and each company's sales, expenses, assets, and liabilities are converted into yen when preparing consolidated financial statements. Fluctuations in exchange rates cause the yen-converted value to change even when the value in local currency remains unchanged, which could affect operating results and financial condition. Foreign exchange exposure is expected to expand further going forward due to the establishment of the Indian subsidiary.

Steel, the main raw material for the Group's principal product, custom fasteners, fluctuates in price due to global supply-demand balance and economic conditions in each production region. The Group is responding by pursuing economies of scale through narrowing down raw material manufacturers and by passing costs on to sales prices, but if steel prices surge and it becomes difficult to pass the increase on to sales prices, this could adversely affect operating results.

Although the Group has established a quality control system based on ISO9001 and IATF16949, there is no guarantee that defects will not occur in any products in the future. While the Group has product liability insurance, there is no guarantee that the insurance can fully cover the ultimate amount of damages, and if a serious quality problem beyond expectations occurs, costs associated with product defects or recalls could arise, which could affect operating results and financial condition.

In accordance with the application of the "Accounting Standard for Impairment of Fixed Assets," the Group assesses whether impairment recognition is necessary when signs of impairment are identified in fixed assets it holds. Depending on future trends in the fair value of fixed assets and future cash flow conditions, recognition of impairment losses may become necessary, which could affect operating results and financial condition.

While the Group's main manufacturing bases are dispersed across eight locations in Aichi Prefecture, Mie Prefecture, Fukuoka Prefecture, Kagoshima Prefecture, Thailand, the United States, and China, a situation in which production becomes impossible is anticipated if disasters such as earthquakes, lightning strikes, or flood damage occur. Although the Group strives to mitigate risk through information gathering and system development tailored to each region, a large-scale disaster could have a material impact on operating results and financial condition.