MURO CORPORATION

As the weighting of production and sales activities at overseas bases in North America, Asia, and other regions increases, unpredictable events such as natural disasters, terrorism, war, and epidemics may impede business execution. There are concerns about the impact on the launch, operation, business performance, and financial condition of overseas businesses. The Company continuously monitors local conditions and strives to reduce impact through flexible responses.

The proportion of the Metal-related Parts Business in net sales reached 88.5% in FY2026 (ending March 2026), meaning that fluctuations in production volumes by Japanese automakers both domestically and overseas directly affect business performance. In particular, since core products are for internal combustion engines and transmissions, there is a risk that even if automobile production volumes do not decrease, sales could be affected by changes in parts composition due to the progress of EV adoption. In response, the Company is promoting the acquisition of parts that will remain in demand even after the shift to EVs, expansion of non-automotive parts, launch of new businesses, and expansion of resin parts into different fields such as medical equipment.

The Group's core products are for conventional vehicles (including hybrid vehicles) that use internal combustion engines and transmissions as the power and transmission mechanism. If the shift toward drive systems using only motors and reduction gears progresses, there is a risk that demand could decline significantly due to changes in parts composition. This is a structural risk in which demand for the Company's parts could shrink even if automobile production volumes are maintained. The Company is addressing this by acquiring parts that will remain in demand after the shift to EVs and by launching new businesses.

A considerable portion of production is forecast-based, relying on preliminary information based on customers' production plans and past demand trends. If a significant gap arises between forecast production volume and actual order volume, excess inventory may occur, potentially affecting business performance and financial condition. The Company transacts with many unit manufacturers, including direct transactions with 11 domestic finished vehicle manufacturers, creating a risk that production fluctuations at multiple customers could overlap. The Company strives to improve forecast accuracy through more accurate information gathering.

The yen conversion of assets and liabilities arising from foreign currency-denominated transactions, as well as the conversion of sales of foreign currency-denominated products, are affected by exchange rate fluctuations, which may impact business performance and financial condition. Currently, the historically weak yen continues, which is fundamentally positive for the Group, but a rapid shift toward yen appreciation carries the risk of conversion losses on foreign currency-denominated assets. The Company continuously monitors exchange rates while adjusting its assets accordingly.

Although the Company has established a quality assurance system to meet customers' strict quality requirements, if a quality defect occurs and is released during the manufacturing process and develops into a major claim, it may significantly affect business performance and financial condition. As an automotive parts manufacturer, quality issues inherently carry the risk of leading to recalls or termination of business relationships. The Company continuously works to improve quality and maintain and strengthen its quality assurance system.

Procurement prices for ordinary steel, special steel, and non-ferrous materials, which are the main materials for the Metal-related Parts Business, as well as resin, the main material for the Resin-related Parts Business, are significantly affected by market conditions, and cost increases have continued against a backdrop of rising resource prices, a weak yen, and labor shortages. Fluctuations in scrap prices also affect business performance, and rising costs for consumables, auxiliary materials, electricity, gas, and labor further squeeze profitability. The Company seeks to recover a certain portion of these costs through negotiations with customers to reflect them in selling prices, but there are some customers for whom full recovery is difficult or where the recovery period is delayed.

If a supply chain disruption occurs due to natural disasters such as earthquakes or floods, accidents such as fires, or the spread of infectious diseases, it may affect business performance and financial condition through suspension of business activities, loss of opportunities, and recovery cost burdens. There have been cases where this risk has materialized, such as supply chain disruption stemming from the deteriorating situation in Iran. The Company works to reduce the impact when such risks occur through ongoing preparedness, and responds flexibly according to the situation when risks materialize.