TOYOTA INDUSTRIES CORPORATION

In 2023, procedural violations in the certification process were identified for multiple models of engines for industrial vehicles sold in the domestic market, resulting in the revocation of type designation/certification and a corrective order from the Ministry of Land, Infrastructure, Transport and Tourism. Investigation and consultation regarding the certification issue for engines destined for the North American market are still ongoing, and risks remain of declining brand credibility and the incurrence of compensation-related costs. This may adversely affect the Group's financial position and results of operations.

The Group positions thorough compliance as one of its most critical management priorities and is advancing organizational structure development as well as education and awareness activities for officers and employees. However, if a material legal violation were to occur, it could lead to a loss of social credibility and damage to brand image. In addition to compliance with domestic and overseas laws and regulations, conformity with social norms is also required, necessitating ongoing efforts to avoid and minimize such risks.

The Group's major customer is Toyota Motor Corporation, and sales of vehicles, engines, and other products to Toyota accounted for 13.1% of total consolidated sales for the fiscal year under review. Toyota Motor Corporation is also a major shareholder holding 24.7% of the Company's voting rights, and changes in Toyota's automobile sales trends may directly affect the Group's results of operations.

Competition is fierce across various industries, including the Automobile and Industrial Vehicles businesses, and under an increasingly intense price competition environment, it may become difficult to maintain or expand market share. While the Group states that it offers high value-added products, if it becomes unable to maintain profitability, this may adversely affect its financial position and results of operations.

Future growth is highly dependent on the development and sale of new products; however, there is no guarantee that development funding will be secured, and accurately forecasting market needs is also difficult, so success in product sales is not guaranteed. In addition, there is no guarantee that newly developed products and technologies will always be protected as intellectual property rights, and failure to bring products to market in a timely manner may reduce future growth.

Threats such as cyberattacks are increasing, and if the Group were to suffer ransomware attacks or other cyberattacks exceeding expectations, delays or stoppages in production and delivery activities, or leakage of confidential information, could occur. As a result, competitiveness and reputation may decline, adversely affecting the Group's financial position and results of operations. The Group continues to strengthen its security measures and conduct internal education and training.

If a large-scale natural disaster such as a massive Nankai Trough earthquake were to occur, production and delivery activities could be delayed or halted in the Chubu region, where many of the Group's domestic plants and suppliers are concentrated. A prolonged stoppage carries the risk of materially adversely affecting the Group's financial position and results of operations. The Group is working together with suppliers to diversify supply regions and optimize the supply chain.

The Group produces, sells, and provides services for its products worldwide, and in particular, yen appreciation against the US dollar and euro may reduce the price competitiveness of its products, adversely affecting its financial position and results of operations. To reduce this risk, the Group hedges foreign exchange fluctuation risk in principle through derivative transactions such as forward foreign exchange contracts.

Environmental regulations continue to be revised and strengthened, and failure to respond appropriately may result in decreased product sales or restricted production volumes, among other effects, adversely affecting the Group's financial position and results of operations. Regarding climate change, in addition to transition risks associated with moving toward a decarbonized society, physical risks are also anticipated, such as plant stoppages and supply chain disruptions due to the intensification and increased frequency of abnormal weather events such as floods. The Group is working on developing products that comply with environmental regulations and reducing environmental impact.

The Group's production depends on the procurement of raw materials and parts from multiple suppliers, and shortages of raw materials and parts may occur due to global supply tightness or unforeseen accidents at suppliers. Supply shortages may cause production delays and increased costs, adversely affecting the Group's financial position and results of operations. The Group strives to ensure stable procurement by concluding basic transaction agreements with suppliers.