TOTO LTD.

Natural disasters such as earthquakes, tsunamis, typhoons, and floods, as well as terrorism, war, fire, explosions, and infrastructure outages, may cause damage to buildings and facilities and have a serious impact on human resources, potentially causing significant disruption to part or all of business activities. Relocation of business sites and facility repairs may incur substantial costs, which could have a major impact on the financial position and business results. As a countermeasure, the Group has formulated a BCP and continues to conduct evacuation drills and risk simulations at all Group business sites.

In the event of a product defect, liability that cannot be fully covered by product liability insurance and substantial countermeasure costs may arise, and media coverage could damage the brand image and lead to customer attrition. In addition to the impact on financial position and business results, this could lead to a long-term decline in competitiveness. The Group ensures quality based on strict proprietary quality standards and has established a system for rapid information gathering and appropriate disclosure in the event of an incident.

In overseas business development, political instability, uncertainty in economic trends, differences in religion and culture, and obstacles in business customs, as well as exchange rate and interest rate fluctuations, changes in investment and import/export regulations, and the impact of terrorism and conflict on employee safety and site operations, may occur. These could have a wide-ranging impact on financial position and business results. The Group has established crisis management coordination organizations at each site and implements measures to rapidly gather overseas risk information and ensure employee safety.

If the supply of raw materials and components is interrupted due to geopolitical risk, large-scale disasters, supplier bankruptcy, or other factors, timely alternative procurement may become difficult, potentially having a long-term impact on the global supply chain. Sudden changes in the supply-demand environment could have a material impact on the business, financial position, and business results. The Group has established multi-sourcing procurement based on its purchasing policy, secured BCP inventory, and built a system for rapid understanding of disaster conditions through collaboration with suppliers.

New tax burdens accompanying stricter regulations aimed at reducing greenhouse gas emissions, as well as increased procurement costs for raw materials and energy, could impact the business, financial position, and business results. The Group conducts scenario analysis and assessment based on TCFD recommendations and discloses its efforts toward achieving carbon neutrality.

If customer personal information or confidential information is leaked externally due to unforeseen circumstances, this could result in substantial costs such as damages, adverse effects on brand image, and unauthorized use of important confidential information by third parties. The Group implements access management and unauthorized access prevention measures based on the TOTO Group Personal Information Policy and Security Policy, and conducts ongoing security education and training for all employees.

If governance failures or inadequate internal controls occur in business operations in certain regions, this could impact the business, financial position, and business results, and respect for human rights and legal compliance are required throughout the supply chain. The Group has established a process for confirming and approving global education and monitoring plans at the Compliance Committee, which meets four times a year, enabling early detection of violation risks and implementation of appropriate countermeasures.

If demand fluctuates significantly in the housing-related and fine ceramics fields due to changes in Japan's demographic structure, heightened geopolitical risk, a global economic slowdown, fluctuations in the semiconductor market, and other factors, this could impact the business, financial position, and business results. The Group is promoting a shift to a business structure less affected by demand trends through strengthening competitive advantage in the remodeling field for domestic housing, multifaceted sales development for overseas housing, and development of new applications for fine ceramics.

If competition with other companies intensifies across a wide range of product and service fields, product price declines could impact the business, financial position, and business results. There is also a possibility that the Group may not be able to maintain its competitive advantage in the future. The Group is actively working to maintain and strengthen its competitiveness through the development of high value-added products, brand value enhancement activities, and cost reduction activities.

If other companies take the lead in improving productivity and competitiveness through rapid technological innovation in the business field, or create new business models, the Group's relative competitive advantage could decline, impacting the business, financial position, and business results. The Group is actively working to create new customer value by strengthening product development capabilities through the integration of core technologies and digital technology, and by improving productivity through production and manufacturing innovation activities.