Toyo Tire Corporation

For the Group, whose core operations are the Tire Business and the Automotive Parts Business, a decline in automobile sales caused by a global economic slowdown directly affects consolidated business results. In addition to economic conditions in key markets such as North America, Europe, and Asia, domestic factors such as economic trends and reduced demand for winter tires due to mild winters also constitute factors affecting business performance. As the Group continues to expand its global operations, there is a risk that a deterioration in economic conditions in a specific region could spread and affect overall business performance.

The overseas sales ratio was 80.4% in FY2022 (ended December 2022), 80.0% in FY2023 (ended December 2023), 81.5% in FY2024 (ended December 2024), and 81.3% in FY2025 (ended December 2025), accounting for more than 80% of consolidated net sales, making the Group's business structure highly susceptible to exchange rate fluctuations. Although risk is hedged through forward exchange contracts and other means, sharp fluctuations in exchange rates could have a material impact on consolidated business results. It should also be noted that exchange rate fluctuations have a dual impact, also affecting the cost of imported raw materials such as natural rubber.

Natural rubber, synthetic rubber, and petrochemical products are the Group's key raw materials, and their costs are heavily influenced by international market conditions for crude oil, naphtha, and natural rubber. Since many of these materials are imported, they are also affected by exchange rate fluctuations, and there is also a risk that imported raw materials used at the Group's US plants could be affected by US tariff policy. These combined price fluctuations could push up manufacturing costs and affect consolidated business results.

Although the Group regards quality control as a top management priority and has established a robust system, there is no guarantee that defects or quality issues in products can be entirely eliminated. In the event of a large-scale recall or significant damages arising from defects, in addition to a direct financial impact on consolidated business results, there is also a risk of damage to the Group's brand. Since tires are products directly related to safety, the social impact of quality issues is particularly significant.

Failure to comply with laws and regulations in the course of domestic and overseas business activities could result in restrictions on operations or increased costs. There is also a risk of becoming subject to litigation or investigations by authorities in various countries, and if major litigation is filed or an authority investigation is initiated, this could affect consolidated business results. While the Group is working to strengthen its compliance system and enhance internal controls, the complexity of regulatory compliance in each country is increasing as global operations expand.

The Group is actively investing in overseas production bases to establish a flexible supply system capable of responding to global demand. While appropriate investment management is being carried out, if results differ from plans due to global economic fluctuations or other factors, this could affect consolidated business results. Since large-scale investments in overseas bases entail increased fixed costs, this structure also heightens the risk of downward pressure on performance in the event of demand fluctuations.

If large-scale disasters such as earthquakes, fires, storms and floods, disease, war, or terrorism occur not only at the Group's own production sites but also at raw material suppliers or product delivery destinations, this could affect the entire supply chain and worsen consolidated business results. Although the Group implements BCP measures such as regular equipment inspections, establishment of emergency response measures, and training, it is difficult to completely avoid the impact of large-scale disasters. Given the Group's global production and sales network, the scope of impact from geopolitical risk is also broad.

Although the Group hedges interest rate fluctuation risk through the introduction of a cash pooling system, an increase in the ratio of long-term borrowings, and diversification of fundraising methods, a rapid deterioration in the financial environment or a medium- to long-term rise in interest rates could increase fundraising costs and affect consolidated business results. In addition, there is a risk that fluctuations in the discount rate used for retirement benefit obligations or a deterioration in the investment yield of pension assets could lead to increased expenses and obligations.

The Group holds marketable securities, and if a general and substantial decline in share prices continues, impairment losses or valuation losses could arise on the securities held, affecting consolidated business results. The risk of fair value fluctuations on cross-shareholdings and other strategic holdings tends to materialize particularly during periods of broad stock market decline. Depending on the scale of securities held, this could lead to the recognition of significant losses on a temporary basis.

Although the Group strives to accumulate technical know-how and protect its intellectual property rights, it may not always be able to effectively prevent infringement of its intellectual property rights by third parties. In addition, if the Group is sued by a third party alleging that its products or technologies infringe on the third party's intellectual property rights, and such claims are upheld, this could result in damages or restrictions on product sales, affecting consolidated business results. As global operations expand, addressing differences in intellectual property systems across countries has become a challenge.