AHRESTY CORPORATION

The Company's operating revenue is highly dependent on the Die Casting Business, with automotive-related sales accounting for over 90% of that segment's revenue. Consequently, domestic and overseas economic downturns or production stoppages/cutbacks by automotive OEMs directly affect business performance. Fluctuations in automotive OEM production due to supply chain disruptions in parts procurement are also a contributing factor. Although the Company gathers information on key markets in Japan, North America, and Asia and maintains production systems responsive to such fluctuations, an unforeseen contraction in demand exceeding expectations could have a material impact on the Company's financial condition.

With the advancement of CASE (Connected, Autonomous, Shared, Electric), demand for the powertrain-related die cast products that currently form the core product lineup may change over the medium to long term. In the short term, the Company views OEMs' reduced die casting investment and resulting outsourcing expansion as an order opportunity, while in the medium to long term it plans to respond by strengthening its entry into structural components such as parts for electric vehicles and chassis components. If the transformation of the business structure is delayed, there is a risk of declining competitiveness.

The Company conducts production and sales operations in North America and Asia, and appreciation of local currencies increases manufacturing and procurement costs, as well as affecting the consolidated financial statements after conversion to yen. Rising interest rates may also increase financing costs on borrowings from financial institutions used for capital expenditures and business continuity. Although the Company seeks to mitigate these effects through hedging contracts, there are also risks of hedge costs, counterparty credit risk, and opportunity losses due to unexpected market fluctuations.

For the purpose of stable fundraising, the Company has entered into syndicated loan agreements with several financial institutions, which are subject to certain financial covenants. If the Company breaches these financial covenants, the relevant borrowings may become subject to immediate lump-sum repayment and the contracts may be terminated, potentially having a material impact on cash flow. Strengthening the financial base under the medium-term management plan is a prerequisite for compliance with these covenants.

The prices of secondary aluminum alloy ingot, the main raw material for the Die Casting Business, and of raw materials for the Aluminum Business, are affected by overseas market conditions such as the LME. The Die Casting Business adopts a contract structure that passes through price changes to product prices every three months, limiting the long-term impact on profit, but short-term price fluctuations may put pressure on earnings. In the Aluminum Business as well, a sharp rise in raw material prices can temporarily widen the gap with selling prices, affecting profit.

As die cast products are used worldwide due to the Company's global operations, any claims or recalls that arise carry the risk of spreading globally. Although the Company has obtained ISO9001/IATF16949 certification and established rigorous quality control and inspection systems, there is no guarantee that product liability insurance will fully cover the final amount of damages. Similarly, if falsification or fabrication of inspection data occurs, this could result in significant impact on business performance and financial condition due to damages claims and loss of credibility.

The Company holds numerous patents and trademarks related to its products, and if these cannot be adequately protected across a broad range or are illegally infringed upon by third parties, business activities could be adversely affected. Conversely, if the Company unknowingly infringes upon third-party intellectual property rights, it may bear substantial damages liability and face restrictions on its business activities. While the Company states it does not depend on any single patent, ensuring the effectiveness of intellectual property protection remains an ongoing challenge.

As the proportion of production and sales in overseas markets such as North America and Asia continues to increase year by year, unforeseen events such as war, terrorism, or strikes in host countries could cause delays or stoppages in raw material procurement, production, logistics, and sales. If such delays or stoppages become prolonged, there is a risk of adverse effects on the business, financial condition, and operating results. Responding to geopolitical risks and labor issues is becoming increasingly important as overseas business expands.

In the event of large-scale earthquakes, typhoons, or other natural disasters, fires, accidents, pandemics, and the like, production, delivery, and service activities may be delayed or suspended due to employee casualties, spread of infection, paralysis of production facilities, damage to business partners, delays in public infrastructure recovery, or public regulations. Since the Company operates production sites globally, simultaneous impact on multiple sites is also anticipated. The effectiveness of the Business Continuity Plan (BCP) will determine the extent of impact on business performance.

As the Company handles confidential information, including important information from customers, it has established internal regulations and access restrictions; however, if information leakage, destruction, or falsification occurs due to internal misconduct or cyberattacks, there is a risk of loss of social trust leading to suspension of new orders, termination of business relationships, damages claims from customers, and stock price declines. With the advancement of digitalization, the threat of cyberattacks is increasing, requiring continuous strengthening of the information security framework.