AISAN INDUSTRY CO., LTD.

Approximately 50% of net sales in the current fiscal year were to Toyota Motor Corporation, and the sales trends of that company directly affect the performance of the Group. If Toyota Motor Corporation's production and sales decline, there is a possibility of a significant impact on the Group's earnings. The high degree of dependence on a specific customer carries inherent risks of reduced bargaining power and fluctuations in order volume.

With the acceleration of electrification in the automobile industry, the Group is promoting product development with the aim of becoming a world-leading manufacturer in the field of electrified powertrain control. However, if the Group is unable to respond to rapid changes including technological advancement, future growth and profitability may decline, potentially adversely affecting the Group's business performance and financial condition. The Group is addressing this by continuing to develop systems and products compatible with all types of power sources.

Price competition in the automotive parts industry is extremely severe, and further intensification of competition is expected in each region. The Group is addressing this through rationalization activities such as productivity improvement and cost reduction through optimal procurement; however, if the Group fails to win against competitors worldwide, this may adversely affect its business performance and financial condition. Maintaining cost competitiveness remains an ongoing challenge.

The Group works to build in quality throughout the entire process from design to production and sales; however, there is no guarantee that all products are free of defects or that recalls will not occur in the future. Large-scale recalls and product liability compensation could require substantial costs and could significantly affect the Group's reputation. Although the Group has product liability insurance, there is no guarantee that it will be sufficient to cover the final amount of compensation.

Demand for automotive parts, which accounts for a significant portion of the Group's operating revenue, is linked to automobile production volumes in Japan, Asia, the Americas, and other regions. Economic downturns or declines in automobile production volumes in these regions may adversely affect the Group's business performance and financial condition. The Group has a structural vulnerability to global economic fluctuations.

The Group produces and sells products in various regions around the world, and yen appreciation against local currencies adversely affects the business, while yen depreciation has a positive effect. Significant fluctuations in exchange rates may affect business performance and financial condition. With the Group's global business operations, continuous management of foreign exchange risk is required.

In production and sales activities conducted in various countries, unexpected political factors, government regulations (tariffs, import restrictions, taxation, etc.), social unrest such as terrorism or war, and operational interruptions due to strikes may adversely affect the Group's business performance and financial condition. In addition, there is a risk that changes in the management environment of group companies could force business restructuring or withdrawal, resulting in financial losses. Given the rising geopolitical risks, the importance of this risk is increasing.

If production lines are interrupted or the supply chain is disrupted due to large-scale earthquakes, natural disasters associated with climate change, or the prolongation of infectious diseases, the Group's production capacity may be significantly reduced. Although regular disaster prevention inspections and checks are conducted, there is no guarantee that such impacts can be completely prevented or mitigated. Measures are being taken to minimize the impact of matters that can be addressed with respect to force majeure events.

Based on the information security promotion plan, the Group implements measures against cyberattacks and provides employee training, and has also taken out cyber insurance; however, if an information security incident occurs due to external cyberattacks or if funds are misappropriated due to fraud, this may adversely affect business performance and financial condition. With the advancement of digitalization, continuous response to cyber risk has become essential.

Although the Group procures raw materials and parts used in product manufacturing from multiple suppliers and has entered into basic transaction agreements, there is no guarantee that price surges or shortages will not occur due to changes in market conditions. Sharp increases in the prices of raw materials and parts could lead to higher manufacturing costs, potentially adversely affecting business performance and financial condition. Due to increasing instability in the global supply chain, addressing procurement risk has become an important challenge.