CHUO SPRING CO.,LTD.

Automotive-related demand, which accounts for the majority of the Group's operating revenue, is directly affected by economic trends in major markets including Japan, North America, China, and Asia. A contraction in demand due to economic downturn could adversely affect business performance and financial condition. It should also be noted that the Group is indirectly affected by economic conditions in regions where competitors manufacture.

34.4% of net sales in the current consolidated fiscal year were to Toyota Motor Corporation, indicating a high degree of sales dependence on the company. Changes in Toyota Motor Corporation's sales trends or purchasing policies could have a direct and significant impact on the Group's business performance. High dependence on a specific customer is a risk factor affecting the stability of revenue.

The Group conducts production and sales activities in the United States, China, emerging markets in Asia, and other regions, which inherently carries the risk of political, economic, and social disruption. The Group may also be affected by changes in government regulations and legal requirements in each country. In addition, since the consolidated financial statements are denominated in Japanese yen, exchange rate fluctuations affect product sales prices and raw material procurement costs.

Increases in the prices of key raw materials due to supply-demand tightness and other factors could disrupt production plans and raise costs, potentially adversely affecting business performance and financial condition. Soaring crude oil prices raise production and logistics costs, and also negatively affect the overall economy and automobile sales. The Group addresses this by selecting optimal procurement sources from the perspectives of supply stability, quality, and cost.

Disasters, power outages, or other disruptive events at production facilities could halt manufacturing lines, potentially leading to reduced production capacity. Although numerous countermeasures have been implemented, particularly against the Nankai Trough earthquake expected to occur in the near future, there is no guarantee that the impact can be completely prevented or mitigated. The Group seeks to minimize risk through regular equipment inspections.

There is no guarantee that recalls will not occur in the future due to changes in the external environment relating to safety. If a large-scale recall or product liability claim occurs, it could result in substantial cost burdens and significant damage to corporate reputation, potentially having a material impact on business performance and financial condition. The Group's basic policy is to strengthen its quality assurance system in the manufacturing of its various products.

Retirement benefit expenses and obligations are calculated based on actuarial assumptions such as the discount rate and the long-term expected rate of return on pension assets. If actual results diverge from these assumptions, it could have a material impact on future expenses and obligations. Changes in the interest rate environment or deterioration in investment performance that necessitate revisions to assumptions could increase the financial burden.

If the market value of owned land, buildings, and other assets declines significantly, or if business losses continue, it may become necessary to recognize impairment losses on fixed assets, which could adversely affect business performance and financial condition. In particular, for the Group, which has made large investments in manufacturing facilities including overseas sites, deterioration in the business environment is a factor that increases impairment risk.

The Group may become party to various lawsuits or legal proceedings by regulatory authorities in the course of its business activities, which could have a material impact on business performance and financial condition. Since many technologies are used in its products, there is also a risk of litigation with third parties regarding intellectual property rights. The Group is strengthening its efforts toward continuous enhancement of compliance management and protection of intellectual property rights and prevention of infringement.

If a large-scale global outbreak of an infectious disease, such as COVID-19, causes automakers to halt operations or leads to sluggish demand for new vehicles, there is a risk that sales to major customers could decline significantly. This could have a material impact on the Group's financial position, business performance, and cash flows in the following consolidated fiscal year and beyond.