ESTIC CORPORATION

Approximately 90% of domestic sales and nearly 100% of overseas sales are to the automotive industry, meaning that a downturn in the economy or a decline in automotive demand leading to reduced capital expenditure directly affects business performance. The structure has an extremely high sensitivity to fluctuations in automotive production, and the Company is working to reduce this dependence by concurrently expanding sales channels into other industries.

Dependence on the Chinese market through the Shanghai joint venture is gradually increasing, and there are concerns about the impact on business performance if sales become difficult due to changes in the political or economic environment. Although the joint venture's business is currently progressing smoothly, the Company aims to diversify risk by diversifying destination markets in response to geopolitical risks and regulatory changes.

As the Company conducts global sales activities in Asia, the United States, and elsewhere, unexpected changes in laws, regulations, or tax systems, deterioration of political and economic conditions, or social disruption due to terrorism or war may affect business performance. The Company strives to reduce this risk by carefully monitoring trends in overseas markets and thoroughly implementing risk control.

As sales to overseas markets increase, US dollar-denominated foreign currency receivables are expected to increase, and a sharp appreciation of the yen against the US dollar could result in significant foreign exchange losses, making it impossible to secure planned profits. As countermeasures, the Company aims to avoid future foreign exchange fluctuation risk by reducing the impact through optimization of overseas trade flows and, as necessary, utilizing forward exchange contracts.

Some key components depend on specific suppliers, and if stable procurement cannot be secured due to changes in the industry environment or changes in the manufacturing or sales policies of such suppliers, this may affect product supply and business performance. The Company seeks to mitigate this risk by diversifying risk through transactions with multiple suppliers and maintaining favorable business relationships.

If natural disasters such as earthquakes, tsunamis, or typhoons disrupt electricity or transportation networks or cause damage to business partners, normal business activities may be hindered, affecting business performance. The Company prioritizes swift assessment of the disaster situation and respect for human life, while working to continue operations and achieve early recovery, and seeks to mitigate risk by reviewing the content of its casualty insurance coverage annually.

Against the backdrop of the automotive industry's relocation of production bases overseas, the ratio of overseas sales has been rising, and as sales concentration in specific regions progresses, the risk of sales difficulties due to political and economic changes is increasing. The Company has set a policy of reducing and equalizing regional risk by increasing and expanding the number of destination markets.