TOKAI RIKA CO.,LTD.

Sales performance of the Group's products is heavily dependent on automobile sales volumes, and events that directly affect the production trends of finished vehicle manufacturers, such as U.S. tariff policy, can have a significant impact on business performance. In particular, the ratio of sales to Toyota Motor Corporation and the Toyota Group is high at 74%, making the Group strongly affected by that company's production trends. As a countermeasure, the Group continues expanded sales activities to other finished vehicle manufacturers at each location, advancing customer diversification.

The automotive industry is undergoing major structural changes involving automation, electrification, softwarization, and carbon neutrality response, and delays in responding to these changes could lead to lost opportunities in existing and new businesses, affecting operating results. The Group is advancing the development of "Hidden Switch," demonstration testing of a remote monitoring system for autonomous driving, and, in the digital key field, the development of the company vehicle management service "Bqey" and the unmanned rental car service "Uqey." However, the pace of technological change is rapid, and the risk remains high if the direction of development investment is mistaken.

With the reorganization of the automotive industry and progress in automation and electrification, new entrants from other industries into the Group's business areas have increased, intensifying competition. The Group is working to strengthen competitiveness through DX-driven shortening of development and production preparation lead times, improvement of business processes in indirect departments, and reorganization of production systems both domestically and internationally. Delayed response to changes in the competitive environment could adversely affect market share and profitability.

Recalls and product liability issues may occur in the future, and as the standardization of automotive parts progresses, quality defects could affect a wider range of products, resulting in substantial costs. Quality issues can lead not only to financial impacts on business performance but also to a loss of customer trust. In response, the Group is promoting quality improvement activities based on the goal of being "chosen by customers for stable quality" by 2030, centered on three pillars: achieving recall-free status, strengthening the quality foundation, and improving customer satisfaction in new businesses.

Cyberattacks, including ransomware, are increasing both domestically and internationally, with damage occurring that targets entire supply chains. If a similar event were to occur within the Group, it could result in leakage of confidential and personal information, as well as significant disruption to business activities such as suspension of production and logistics, potentially leading to a decline in social credibility and affecting business performance and financial condition. As countermeasures, the Group ensures CIA (confidentiality, integrity, and availability) based on its information security policy, has established an initial incident response system including domestic and overseas group companies, is enhancing continuous monitoring systems, and is implementing backup preparation and verification.

Natural disasters such as earthquakes, typhoons, and floods, as well as infectious diseases, could halt corporate and production activities, and insufficient preparedness could result in severe damage such as delayed recovery from production stoppages. As countermeasures, the Group is strengthening company-wide BCP through enhanced disaster mitigation measures, initial response drills, and production recovery drills, in addition to increasing inventory of electronic components for BCP purposes and conducting simulations of transitioning to external manufacturing in emergencies. The Group is also promoting risk response across the entire supply chain, including suppliers.

The Group's production depends on the supply of raw materials and components from suppliers, and instability in supplier operations due to accidents or disasters, or price increases and supply shortages due to tight supply-demand conditions, could significantly affect stable production. In response, the Group identifies high-risk suppliers from a business continuity perspective, verifies the appropriateness of inventory management, process management, and production management, and formulates improvement plans for each supplier.

The Group operates 30 locations across 12 countries overseas, and the proportion of overseas operations is increasing year by year; however, there are inherent risks of trouble arising from changes in laws and regulations, political, economic, and social turmoil, and differences in culture and customs, particularly in emerging countries. Unexpected events such as changes in the political and legal environment, labor shortages, and strikes could cause problems in business execution. As countermeasures, the Group makes efforts to obtain and respond appropriately and in a timely manner to trends in local laws, regulations, and tax systems by utilizing the information networks of overseas locations' staff and external consultants.

In the current consolidated fiscal year, overseas sales accounted for 60% of consolidated net sales, and exchange rate fluctuations could have a significant impact on operating results. In a yen appreciation scenario, the yen-equivalent value of overseas sales decreases, creating a risk of pressure on earnings. As a countermeasure, the Group implements risk hedging through forward exchange contracts for a portion of foreign currency-denominated export receivables, working to minimize the impact.

Climate change risk exists across the entire scope of corporate activities, including product development, procurement, production, logistics, and sales, and disaster risk from abnormal weather affecting production and cost increases from stricter regulations could stall corporate activities. The Group has formulated the "Carbon Neutral Strategy 2030," setting a target to reduce factory CO2 emissions by 60% or more by 2030 (compared to fiscal 2013), and is working to expand the use of renewable energy, among other measures. The Group is also promoting environmental information disclosure through initiatives aligned with the final recommendations of the TCFD and responses to the CDP.