Tokyo Cosmos Electric Co., Ltd.

Approximately one-quarter of consolidated net sales are attributable to Toa Denki Kogyo Co., Ltd., the Company Group's major customer for automotive electrical components, resulting in a high degree of dependence on sales to a specific customer. If changes occur in the customer's parts composition or in its business policy toward suppliers, this could have a material adverse effect on the Company Group's business performance and financial condition. Although the Company Group is working to expand its customer base, resolving this dependence is expected to take time.

The Company Group conducts production and sales activities in Asia (including China and Taiwan), North America, and Europe, and has continued to expand production in China. Should unexpected changes in laws and regulations, social disruption due to terrorism or war, the spread of infectious diseases, labor disputes, or similar events occur, business operations could become difficult, potentially adversely affecting business performance and financial condition. In addition, some products contain raw materials for which procurement is largely dependent on overseas sources, meaning the scope of overseas risk exposure is broad.

In the heater field, there is a need to respond to new specifications such as high-voltage drive systems, giving rise to quality-related risk requiring high levels of safety and quality. In the potentiometer field, there is demand for the development of products that do not use Pb materials, and development delays could adversely affect business performance. Furthermore, an increase in regulated environmental substances has caused a sharp rise in changes to materials and purchased parts (4M changes), and if appropriate change management procedures do not proceed smoothly, this could also adversely affect business performance.

The Company Group seeks to reduce supply risk by procuring from multiple reliable suppliers and maintaining certain inventory levels; however, sudden fluctuations in raw material prices or supply disruptions could adversely affect business performance and financial condition. In particular, some products contain raw materials for which procurement is largely dependent on overseas sources, and situations in which procurement risk intensifies in conjunction with geopolitical risk are anticipated.

The Company Group works to reduce foreign exchange risk in its overseas production and sales activities through local procurement and promotion of yen-denominated transactions; however, sudden foreign exchange fluctuations could adversely affect business performance and financial condition. Amid heightened geopolitical risk in the global economy and ongoing inflation trends, uncertainty regarding future foreign exchange rate and interest rate movements continues.

The Company Group seeks to differentiate itself from price competition by offering high-quality, high-value-added products; however, if sales price competition intensifies due to technological advances by competitors, this could adversely affect business performance and financial condition. Changes in the competitive environment in the electronic components market remain an ongoing risk factor.

The Company Group manufactures products in accordance with global quality control standards and works to prevent defects through its Quality Assurance Division, and it also maintains product liability insurance. Nevertheless, should product defects occur, this could adversely affect business performance and financial condition, with quality risk being particularly elevated for products destined for new markets requiring high safety levels, such as those involving high-voltage drive systems.

The Company Group holds a large amount of confidential information from business partners as well as its own technical and sales information, and has established various regulations concerning information security and cyberattack countermeasures. However, should a security breach occur due to unauthorized access, computer viruses, or similar causes, this could adversely affect business performance and financial condition.

Due to the declining working-age population and intensifying competition for talent, securing the necessary human resources on a stable basis is becoming increasingly difficult year by year. In particular, if the Company Group is unable to recruit and retain highly specialized personnel, this could affect business promotion and productivity, thereby adversely affecting business performance and financial condition. Although the Company Group is strengthening year-round and mid-career recruitment in addition to new graduate hiring, and is working to improve the workplace environment and develop human resources, if these measures do not function sufficiently, sustainable growth could be hindered.

The Company Group seeks to diversify risk through production at three domestic sites and two sites in China; however, should a natural disaster such as an earthquake occur, this could adversely affect business performance and financial condition. In addition, although the Company Group has identified and is addressing climate change-related risks, delays in response or the occurrence of unforeseen events could also adversely affect business performance.