FALTEC Co.,Ltd.

The Group's core business is the manufacture and sale of automotive exterior parts and genuine accessories, and its main customers are domestic automobile manufacturers, so it is strongly affected by trends in the domestic automotive industry. The domestic market is a mature market, and there is a possibility that automobile manufacturers may reduce the scale of domestic production due to the restructuring of domestic plants and the strengthening of business expansion into overseas markets. Such changes in industry trends may directly affect the Group's sales and earnings.

Nissan Motor Co., Ltd. and companies with capital and business relationships with it are major customers of the Group, resulting in a high degree of dependence on specific customers. If Nissan Motor Co., Ltd. and others change their management policies, increase or decrease their purchase volumes, or change trading conditions, this could have a material impact on the Group's business performance. The Company is working to reduce this dependence by establishing operations in major markets including the United States, Europe, China, and other parts of Asia, and by conducting sales activities targeting multiple automobile manufacturers.

The Group has expanded into the United Kingdom, the United States, China, and Thailand to capture overseas demand, but delays or suspensions in the procurement of materials, production, sales, and transportation may occur due to economic, interest rate, and foreign exchange trends, as well as political developments, changes in laws and regulations, and social disruptions such as terrorism or war. There is a risk that automobile production and sales in the countries where the Group operates may not grow as expected. The Company seeks to mitigate these risks through rapid information gathering and the establishment of flexible production and sales systems.

The Group's products are affected by the prices and supply-demand balance of raw materials and parts procured from external sources, and there is a possibility that soaring material prices or increased demand in procurement markets may make procurement difficult. Price competition is also becoming increasingly severe year by year due to the trend toward global procurement, and if cost increases cannot be passed on to sales prices, there is a risk that profitability may deteriorate. The Company has introduced its own synchronized production activities (FPS activities) to maintain cost competitiveness.

Due to the trend toward global procurement, price competition for the Group's products and merchandise is becoming increasingly severe year by year, and further intensification of competition may put pressure on earnings. As a business practice unique to the automotive industry, continuous cost reduction activities are required even after the start of mass production, and permanent reductions in delivery prices are implemented at the request of automobile manufacturers. The Company is responding through manufacturing efficiency improvements via FPS activities, but if the required level exceeds the Company's ability to reduce costs, this may affect business performance.

The Group manufactures and delivers products in accordance with quality control standards, but if defects or quality problems occur, resulting in recalls or claims, there is a possibility of a decline in customer trust and substantial damages liability. Although the Company has product liability insurance, there is no guarantee that this insurance will sufficiently cover the amount of damages, and there is a risk that the burden of damages exceeding the insurance coverage may affect its finances. Given the nature of automotive parts as products with a significant impact on safety, quality problems are a risk directly linked to business continuity.

The parent company, TPR Co., Ltd., holds 55.54% of the voting rights of the Company's total issued shares (5,207,100 shares), and changes in the parent company's management policy may affect the Group's business. Currently, there is no competition with the parent company group, and there is a clear division of business areas, but the risk of future policy changes cannot be ruled out. In addition, officers of TPR Co., Ltd. serve as Chairman of the Board, Representative Director, and non-executive director, which may pose a challenge in ensuring governance independence.

The Group hedges risk on a portion of its borrowings through interest rate swap transactions, but there is a risk that financial expenses may fluctuate due to market interest rate trends. Regarding foreign exchange, the current ratio of exports and imports is low, so foreign exchange risk from trading is considered minor; however, loans to subsidiaries are hedged using derivatives, and as business expands in the future, the impact of foreign exchange gains and losses may increase. It should be noted that hedging measures do not guarantee complete coverage.

The threat of cyber attacks via the internet is increasing, and unauthorized programs embedded in software or products used by the Company could lead to the suspension of business activities or the leakage of confidential information. As a manufacturing company, the Company also bears security risks across the entire supply chain, and if an attack is successful, the impact on business and reputation could be extensive. The annual securities report does not disclose specific details of countermeasures, and enhancement of the response system is required.

The Group has production sites both domestically and overseas, and there is a risk that natural disasters such as major earthquakes and typhoons, or accidents and fires, may cause production stoppages, equipment damage, or power supply shortages. In addition, if infectious diseases such as COVID-19 spread among employees or business partners, operational suspensions could affect the business activities of the Group and the entire supply chain. Since the Group has production sites spanning multiple countries, there is also a risk that a disaster in a specific region could spread to affect the overall supply system.