MIKUNI CORPORATION

Demand for products in the Mobility Business, which accounts for more than 80% of consolidated net sales, is directly affected by economic conditions in major sales destinations such as Japan, North America, Europe, China, ASEAN, and India. A decline in demand due to economic recession may adversely affect the Group's financial position and operating results. Given the high dependence on specific regions, a simultaneous economic downturn across multiple regions would have a significant impact.

As the Group operates globally in North America, Europe, and Asia, fluctuations in foreign exchange rates and interest rates affect transaction prices, purchase prices, and financial expenses. Since the financial statements of overseas subsidiaries are translated into yen, translation differences may affect consolidated results even when there is no change on a local currency basis. Foreign exchange risk represents a structural challenge to the stability of earnings.

Since the Mobility Business centers on fuel supply devices for four-wheeled vehicles, two-wheeled vehicles, and general-purpose engines, it is subject to emission gas regulations, fuel efficiency regulations, and pollutant regulations both in Japan and overseas. Unexpected changes in regulations may hinder development, production, and sales activities, potentially affecting the Group's financial position and operating results. The tightening of regulations on new sales of internal combustion engine vehicles amid the global decarbonization trend is an additional risk factor.

Raw materials and parts necessary for product manufacturing are procured both domestically and internationally, but rising geopolitical risks and deteriorating supply-demand balance may lead to soaring material prices or procurement difficulties. The Group strives for stable procurement by securing multiple suppliers and considering alternative products, but there are limits to responding to sudden changes in the procurement environment. The Group is working to appropriately pass on cost increases through pricing.

Product defects arising from unforeseen causes may lead to increased quality assurance costs and reduced demand due to diminished product reliability. The Group strives to ensure quality by introducing a system that provides consistent visibility from procurement through production, logistics, and sales, but it is difficult to completely eliminate the risk of product defects. If a quality issue becomes apparent, it may entail brand damage risk in addition to financial losses.

With the progress of powertrain electrification and diversification of energy sources, opportunities for entry into the automotive industry from other industries are increasing, changing the competitive landscape in the core Mobility Business. If structural changes in the industry or the progress of competition exceed the Group's expectations, this may affect its financial position and operating results. Given the business structure centered on internal combustion engine-related products, accelerating electrification may affect the Group's business foundation over the medium to long term.

Many of the Group's domestic sites are located in areas subject to the Tokai earthquake and urban direct-hit earthquakes, and manufacturing and sales activities could decline significantly in the event of a large-scale disaster. Damage to the entire supply chain (including customers and suppliers) is also anticipated, and the Group is taking preventive measures such as strengthening the earthquake resistance of manufacturing sites, conducting disaster drills, and preparing disaster recovery manuals. A global pandemic of a new infectious disease is also recognized as a risk that could affect manufacturing and sales activities.

In the countries and regions where overseas locations are situated, various risks exist, including conflicts, labor disputes, terrorist attacks including cyberterrorism, fiscal collapse, infringement of intellectual property rights, and unexpected litigation. These risks differ in nature by region, and a uniform response may be difficult in some cases. The Group responds appropriately to each risk, but if such events occur, they may affect the Group's financial position and operating results.