PIOLAX,INC.

Over 90% of net sales are attributable to the automotive industry, making the Group highly dependent on the production and sales trends of Japanese automakers. Accelerating electrification, the rise of new EV manufacturers, and policy changes such as U.S. tariffs are increasing demand volatility risk, with particular concern over a mid- to long-term decline in demand for fuel system and drivetrain parts. In response, the Company has established a Product Development Division to accelerate cross-organizational development in growth areas such as EV and HEV compatibility.

The proportion of sales to the Nissan Motor group and related suppliers is relatively high, and changes in the group's production and sales plans or procurement policies directly affect the Company's business performance and financial position. In April 2025, the Company abolished its product-group-based business division system and reorganized into a function-based organization to accelerate decision-making, and is expanding sales to non-Japanese overseas automakers, but this does not completely eliminate the dependency risk.

If a product defect occurs due to factors such as design, manufacturing, logistics, or usage environment, this could lead to automaker recalls, resulting in costs for collection, replacement, sorting, and corrective measures, compensation to customers, line-stoppage costs, and reputational damage. In June 2026, the Company reorganized its Quality Assurance Division and integrated the quality control function into the Business Audit Department, aiming to strengthen its quality management system.

The Group operates in North America, Europe, and Asia, and changes in laws and regulations in each country (tariffs, export controls, sanctions, etc.), fluctuations in political and economic conditions, trade friction, social unrest, and infectious disease outbreaks, among other factors, may cause business activities to stagnate or result in additional costs. The Group is working to mitigate such impacts by strengthening governance and compliance systems at local subsidiaries, reinforcing the supply chain, and expanding local procurement.

As the Group procures key raw materials and some parts externally, fluctuations in international market conditions, supply-demand tightness, supplier production stoppages, geopolitical risks, and other factors may cause price increases, procurement delays, or shortages, potentially affecting profitability. Rising raw material, logistics, and energy costs are continuing, and the Group is working to mitigate the impact by expanding local procurement and maintaining stable trading relationships with suppliers.

As the Group has overseas sales and procurement, exchange rate fluctuations may affect its business performance and financial position. The Group utilizes hedging tools such as forward exchange contracts to mitigate this risk, but it cannot completely eliminate the impact of sudden market fluctuations or changes in each country's systems.

In the short to medium term, there are risks of increased capital expenditure for decarbonizing manufacturing processes, environmental regulatory compliance costs, and rising energy costs; in the medium to long term, there is a risk of declining orders for existing products due to the introduction of carbon taxes and accelerating electrification. As physical risks, supply chain disruption due to abnormal weather, factory operation stoppages, and increased repair costs are also anticipated. As countermeasures, the Group is promoting the renewal of the Moka Plant, energy-saving measures, development of environmentally friendly products, and diversification of the supply chain.

If information systems are disrupted by external cyberattacks, unauthorized access, computer virus intrusion, or similar incidents, or if corporate or personal information is leaked, business activities may stagnate and social credibility may decline. The Information Systems Department leads technical countermeasures, and the Group also works to raise employees' information security awareness through regular education and training.

Due to intensifying competition for talent in the labor market, the declining birthrate and aging population, and the accelerating shift in skills toward advanced technologies, if the Group cannot secure and develop the necessary talent in a timely manner, this may affect R&D, productivity, quality, and business promotion. Under the "PIOLAX Group Human Resources Basic Policy," the Group is advancing the planned recruitment of key personnel, promoting diversity, and creating a comfortable working environment.

Natural disasters such as earthquakes, typhoons, and floods, or the spread of infectious diseases, in Japan and overseas, may disrupt raw material procurement, production, logistics, and sales activities, potentially resulting in operational stoppages, delivery delays, and additional costs. The Group works to prevent occurrence and mitigate impact through the development of business continuity plans (BCP), ensuring employee safety and health management, and appropriately reviewing its crisis management system.