METALART CORPORATION

Purchase prices of steel materials and parts fluctuate due to changes in global market demand trends and production environments. If prices rise, this may directly affect the Group's business performance through increased manufacturing costs. The Group recognizes this price fluctuation risk and maintains a policy of striving to prevent its occurrence and to respond appropriately when it occurs.

Since automotive parts and construction machinery parts account for more than 90% of net sales, business performance is significantly affected by domestic and overseas sales trends in these two industries. Progress in local production and price reductions in emerging markets such as China, Southeast Asia, and India may lead to declines in product prices and reduced orders due to local procurement. These structural changes remain a continuing factor causing fluctuations in net sales and profit.

Working capital is mainly financed through short-term borrowings, while capital expenditures are financed through long-term borrowings, so in a rising interest rate environment, increased interest expenses may adversely affect business performance. Although the Group adopts a fundraising policy that takes interest rate trends into account, the risk of market interest rate fluctuations cannot be completely eliminated.

Since the financial statements of overseas subsidiaries are prepared in local currency and then converted into yen, fluctuations in exchange rates at the time of financial closing may affect consolidated business performance. In particular, exchange rate fluctuations between the local currency of the Indonesian subsidiary and the yen are the main source of impact.

If significant changes in laws and regulations, sudden changes in political and economic conditions, or social disruptions such as terrorism or war occur in Indonesia, where the Group operates, this may affect operating results and financial condition. In addition, while the direct impact of U.S. trade policies such as reciprocal tariffs is considered limited, indirect effects could arise if such policies lead to a global economic downturn.

If a large-scale earthquake and major tsunami centered around the Nankai Trough, or major flood damage caused by massive typhoons resulting from global warming, were to occur, stable supply to customers could become difficult, potentially having a significant impact on operating results and financial condition. The Group has positioned disaster prevention and mitigation, as well as the establishment of a crisis management system, as important priorities and is working to address them.

In manufacturing processes that handle hazardous materials and chemicals, if a fire or explosion accident occurs, this may force a temporary suspension of operations, affecting operating results and financial condition. The Group is working daily to strengthen its safe operation systems to prevent accidents before they occur.

If infections such as COVID-19, influenza, or norovirus spread among employees, this may affect operating results and financial condition through temporary suspension of operations. The Group has established an appropriate management system for prevention and containment of the spread of infection.

If customer information or personal information is leaked, or a system failure occurs due to a cyberattack, this may affect business performance through a decline in social credibility, suspension of production and operations, and loss of competitive advantage. The Group has established a management system and taken appropriate security measures to prevent unauthorized access and information leaks, but the risk cannot be completely eliminated.

Amid growing social demand for environmental protection, environmental laws and regulations are becoming stricter year by year, and there is a possibility that environmental maintenance costs may increase in the future beyond a range acceptable to the Group. The Group has obtained ISO14001 certification and is working on environmental measures, but depending on the degree of regulatory tightening, there remains a risk that this could affect the Group's financial condition and business performance.