TAIHO KOGYO CO., LTD.

Dependence on sales to Toyota Motor Corporation accounts for 27.2% of total sales, and if there were changes in the company's sales trends, changes in procurement policy, or termination of contracts, this could directly and adversely affect the Group's business results and financial position. External events affecting customer companies' trends, such as materials supply shortages, also pose similar risks. As a countermeasure, the Group is working to reduce this dependence through sales expansion activities targeting overseas automakers in Europe, the United States, China, Asia, and elsewhere.

As the Group produces and sells products worldwide, it is affected by exchange rate fluctuations when converting local currency-denominated sales, expenses, and assets into yen. In particular, yen appreciation against the US dollar leads to a decline in price competitiveness and deterioration in earnings; it is estimated that a ¥1 fluctuation in the yen against the US dollar would impact ordinary income by approximately ¥30 million annually. The Group is promoting earnings stabilization through the advancement of local production, expansion of local procurement of materials, and reduction of production costs, but exchange rate fluctuations may have a material impact on business results.

Raw materials and parts used in product manufacturing are procured from multiple suppliers, but if price surges or shortages occur due to changes in market conditions, this could lead to increased manufacturing costs and adversely affect business results and financial position. Although basic transaction agreements are concluded with suppliers on the premise of stable trading, market fluctuation risk cannot be completely eliminated. As recently demonstrated by cases in which materials supply shortages affected customer companies' trends, there are concerns about instability across the entire supply chain.

Employee 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 deviate from these assumptions, such as a decline in the discount rate or a decrease in pension assets, this could have a significant impact on expenses to be recognized and obligations to be recorded in the future. As a countermeasure, the Group is working to reduce this risk by continuing to invest pension assets in more stable assets.

As an automotive parts manufacturer, the Group strives to ensure and improve product quality; however, if a product defect leading to a large-scale recall or similar event occurs, this could have a significant impact on corporate reputation and adversely affect business results and financial position. Since the Group's main business is OEM products, there is a risk that the occurrence of a recall could also affect its business relationships with customer automakers.