Futaba Industrial Co., Ltd.

Automotive Vehicle Parts account for the majority of consolidated net sales, and dependence on Toyota Motor Corporation is particularly high. Changes in the company's production trends and purchasing policies may directly impact the Group's business results and financial condition. This structure of high dependence on specific customers is a factor that amplifies demand fluctuation risk.

The automotive industry is undergoing a once-in-a-century transformation, with a rapid shift from engine-equipped vehicles to electric vehicles underway. Delays in responding to this shift could lead to the loss of existing and new business opportunities, potentially affecting business results and financial condition. As countermeasures, the Group is promoting R&D of parts for BEVs and electrified vehicles, enhancing the added value of Body & Interior Parts through zone development, and pursuing new businesses leveraging exhaust system technology.

As overseas production bases expand, unexpected changes in laws, regulations, and tax systems in each country, as well as social unrest, may affect management. In particular, since the company has manufacturing bases in the United States and Canada and imports raw materials from other countries, changes in tariff policy may affect business results and financial condition. Note that the Group has no bases or business operations in Russia or Ukraine, and the impact of risks related to that region is judged to be low.

The Group is subject to the effects of interest rate fluctuations due to borrowings raised in connection with business expansion, and also bears the risk of changes in yen-converted value due to foreign exchange fluctuations, as overseas sales account for approximately half of total net sales. To address these risks, the Group seeks to reduce risk through measures such as swaps from floating to fixed interest rates and forward foreign exchange contracts. However, the effectiveness of these measures may be limited in the event of sudden changes in market conditions.

If a product defect occurs that leads to a large-scale recall or similar event, it could seriously damage the Group's reputation and affect business results and financial condition. As countermeasures, the Group thoroughly enforces operations based on quality assurance rules that clarify the roles and responsibilities of each department, and practices quality assurance by raising the level of process assurance and product verification assurance according to risk level.

If an information security incident occurs due to increasingly sophisticated cyberattacks or similar threats, it could affect business results and financial condition through a decline in social credibility and the payment of damages. As countermeasures, the Group has established the Futaba Security Guidelines and thoroughly instills confidentiality management awareness among employees, conducts risk assessments through the Information Security Committee, and has taken out cyber insurance.

While the Group strives to secure stable procurement of materials necessary for production while maintaining and improving quality and cost, changes in supply-demand conditions may make stable procurement difficult. If a shortage of materials or a sharp rise in prices occurs, it may affect business results and financial condition through disruption to production activities and deterioration in profitability.

The Group holds substantial fixed assets used in production activities and bears the risk of failing to recover invested capital if business profitability deteriorates. If business profitability deteriorates further in the future, additional impairment losses may be required, which could affect business results and financial condition. While impairment is recognized based on reasonable criteria, there is a risk that the response to sudden changes in the external environment could lag behind.

If the Group is unable to secure sufficient human resources due to the declining birthrate, aging population, and population decline, or if costs increase significantly due to intensifying competition for talent, it may affect business results and financial condition. As countermeasures, the Group promotes the development and expansion of systems and a change in employee awareness under its "Diversity, Equity & Inclusion Declaration," while also actively working on the planned development of local human resources.

The Group has identified a Nankai Trough megaquake as its greatest risk, and has formulated a business continuity plan (BCP), including the introduction of earthquake early warning and safety confirmation systems, seismic reinforcement of buildings, and measures to prevent equipment from toppling or falling. If a major earthquake, large typhoon, flood, or other natural disaster, or the spread of infectious disease, causes significant disruption to the supply chain or product supply, it may affect business results and financial condition. When the BCP is activated, the Group establishes a disaster response headquarters and has developed a system to consolidate information from each production site and minimize the impact on business.