PACIFIC INDUSTRIAL CO., LTD.

Automotive parts for specific major customers, including Toyota Motor Corporation, account for the majority of consolidated net sales. A decline in orders due to changes in production trends or policies of specific major customers could adversely affect business performance and financial condition. As countermeasures, the Company is working to acquire new customers, secure orders for new products that anticipate customer needs, and promote new businesses outside the mobility field.

With overseas sales accounting for approximately 67% of total consolidated net sales, there is a risk that production and sales activities may need to be scaled back due to unexpected changes in laws, tax systems, or import/export regulations, or due to political and social disruption such as war, terrorism, or infectious disease outbreaks. The Company addresses this by collecting economic, political, and social conditions and regulatory information from each country in a timely manner and building a global risk management system.

In automotive parts, the Company's main products, there is a risk that intense price competition with domestic and overseas competitors, combined with soaring raw material procurement prices, could undermine price competitiveness and product superiority, leading to reduced demand and adversely affecting business performance and financial condition. The Company strives to secure its competitive advantage through the promotion of cost reduction activities, the provision of high-value-added products utilizing new technologies and processing methods, and the development of a global production system.

There is a risk that future growth potential and profitability could decline if the Company fails to keep pace with intensifying technology development competition and rapidly changing market needs in the automotive-related industry, and is unable to continuously develop attractive new products. The Company is promoting the development of ultra-high-tensile steel, aluminum, and resin products in the Press & Resin Products Business, and the expansion of TPMS (Tire Pressure Monitoring System) and development of products for electrified vehicles in the Valve Products Business, and is advancing integrated development and production technology research using the new Higashiogaki Plant Technology Development Center, scheduled to begin operation in October 2025.

For metal materials such as steel, brass, and aluminum, as well as rubber and resin materials, there is a risk that manufacturing costs could increase and sales revenue could decline if the Company is unable to absorb or pass on price increases caused by soaring resource and energy costs, or if it becomes difficult to secure necessary quantities due to supply constraints from tight supply-demand conditions or logistics disruptions. In addition to diversifying procurement sources through global procurement, optimizing inventory management, and strengthening the logistics network, the Company conducts procurement activities that give consideration to human rights and the environment, including with respect to conflict minerals.

For Press Products, Resin Products, and valve products that require advanced processing technology and precision, there is a risk that the occurrence of quality defects leading to large-scale recalls or product liability claims could result in significant cost burdens, decreased sales, and lost orders due to loss of credibility. The Company addresses this through building quality into products from the design and production preparation stages, thorough quality checks and product data management at each process, and the establishment of a quality assurance system based on global standards.

In addition to risks related to the application of laws and regulations and legal action in each country accompanying global site expansion, there is a risk that if serious compliance violations such as product data falsification or violations of the Subcontract Act are discovered, this could lead to business suspension orders or sluggish sales due to loss of social credibility. The Company implements measures such as disseminating the "Code of Conduct" to all employees and raising awareness, improving psychological safety, and establishing and providing education on the "Basic Policy on Anti-Bribery and Anti-Corruption" and the "Supplier Sustainability Guidelines."

As the importance of IT utilization increases amid growing use of cloud services and progress in digital transformation, the risk of malicious cyberattacks and system downtime due to negligence is increasing, and there is a possibility that temporary suspension of business activities due to information system failures or loss of credibility due to information leaks could adversely affect business performance and financial condition. The Company addresses this through enhanced security monitoring by external experts, IT literacy education for employees, strengthening of backup environments, and continuous promotion of security measures in collaboration with suppliers.

With overseas sales accounting for approximately 67% of consolidated net sales, there is a risk that business performance and financial condition could be affected by foreign exchange rate fluctuations, both in terms of foreign currency-denominated sales, costs, assets, and liabilities, and in terms of yen-converted amounts in the consolidated financial statements. The Company seeks to mitigate this impact through risk management centered on forward exchange contracts in major currencies such as the US dollar and euro, and through offsetting receipts and payments in the same currency in intra-group settlements.

As a transition risk toward a decarbonized society, there is a risk of declining competitiveness and corporate value due to insufficient response to changing market and customer needs and climate-related regulations, including those in the EU. As a physical risk, there is a risk of plant operation suspension, supply chain disruption, and reduced production capacity due to the intensification of abnormal weather such as localized heavy rain, floods, and droughts. Under "PACIFIC Environmental Challenge 2050," the Company has set targets of reducing CO2 emissions by 50% by 2030 (compared to FY2019) and achieving net zero by 2050, and is promoting adaptation measures such as energy-saving activities, introduction of renewable energy, implementation of internal carbon pricing, and diversification of production sites.