SAWAFUJI ELECTRIC CO.,LTD.

The Group's principal customers are in the automotive and machinery industries, and economic downturns in each region or declines in automotive industry demand and capital expenditure could affect the Group's business results and financial position. In addition, in China and Southeast Asia, unforeseen events such as political conditions, legal regulations, tax system changes, labor disputes, diseases, and religious issues carry the risk of disrupting business operations. The Group strives to prevent the occurrence of these risks and to respond to them appropriately.

The Group's products use large amounts of raw materials such as copper and electrical steel sheets, as well as electronic components such as semiconductors. If raw material market prices surge due to a sharp increase in demand or a decrease in output/production volume, or if it becomes difficult to secure the necessary quantities, this could affect the Group's business results and financial position. Because of the high dependence on specific materials, supply disruptions could directly impact production activities. The Group strives to prevent the occurrence of such risks and to respond appropriately when they arise.

As a manufacturer, the Group makes every effort to ensure product quality; however, if quality problems occur due to unforeseen circumstances, this could affect the Group's business results and financial position. Quality problems carry the risk of leading to recall costs, damages, and loss of customer trust. The Group continues its efforts toward ensuring quality, but complete elimination of such risk cannot be guaranteed.

If manufacturing facilities and other assets are damaged by sudden disasters, natural calamities, or unforeseen accidents, this could affect the Group's business results and financial position through the interruption of production activities. The Group conducts regular inspection and maintenance of manufacturing facilities and makes capital investments for safety purposes, striving to minimize damage. However, complete protection against disasters of a scale exceeding expectations is difficult.

Employee retirement benefit expenses and obligations are calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension assets. If actual interest rate levels fluctuate or the investment yield on pension assets deteriorates, this could affect the Group's business results and financial position. Changes in the interest rate environment directly affect the valuation of retirement benefit obligations through the discount rate. The Group strives to prevent the occurrence of such risks and to respond appropriately, but cannot completely eliminate the risk of market environment fluctuations.

The Group conducts business overseas and exports products to countries around the world, and is therefore subject to the effects of exchange rate fluctuations. The Group implements risk hedging through forward exchange contracts and other means, but there is no guarantee that such risk can be completely avoided, and exchange rate fluctuations may affect business performance as overseas business expands in the future. In particular, in a yen appreciation phase, there are concerns about deteriorating export profitability and reduced yen-denominated earnings from overseas subsidiaries.

If geopolitical risks such as Russia's invasion of Ukraine, US-China trade friction, or escalating tensions in the Middle East materialize, this could affect the Group's business results and financial position. Geopolitical tensions can have multifaceted effects on business activities through supply chain disruptions, surging raw material prices, tightened export controls, and declining demand. The Group strives to prevent the occurrence of such risks and to respond appropriately when they arise.

If a pandemic or other abnormal situation, such as the spread of a new infectious disease, occurs on a scale exceeding the Group's expectations, business operations across multiple business sites could become difficult, potentially having a significant impact on the Group's business results and financial position. Because the Group has multiple business sites, widespread infection or social restriction measures carry the risk of causing simultaneous stagnation in production and sales activities. The Group strives to prevent the occurrence of such risks and to respond appropriately, but may find it difficult to respond to events of an unexpectedly large scale.