WEDS CO.,LTD.

Demand in the Automotive-related Wholesale Business is affected by domestic economic conditions and long-term trends in new vehicle sales, with the shift toward kei cars and the extension of average vehicle usage periods shrinking demand for automotive-related products. The impact of U.S. protectionist trade policy and geopolitical risks such as the situation in Ukraine and the Middle East on economic and consumption trends is also uncertain, and this may adversely affect sales prices and volumes. As countermeasures, the Group is promoting the introduction of attractive products, customer-specific measures, and cost reductions through cooperation with the consolidated subsidiary Logics Co., Ltd.

Since low-priced aluminum wheels and steel wheels are sold as sets with studless tires, demand is concentrated during the snowfall season, requiring substantial lead time to ensure stable product supply. Sales trends for winter products are heavily influenced by snowfall conditions, and there is a risk that demand will decline due to the progression of global warming. The Group addresses this through early establishment of business negotiation systems, an efficient and stable procurement system from manufacturers, and a logistics system based on centralized storage and batch shipping.

For aluminum wheels and other automotive-related products, soaring material prices may further increase procurement prices and manufacturing costs, and in some cases product procurement may become difficult unless significant price increases are accepted. Since negotiations to revise sales prices depend on market conditions, if cost increases cannot be passed on to sales prices, this could adversely affect the Group's consolidated business results and financial condition. Based on a relationship of mutual trust with supplier manufacturers, the Group conducts persistent price negotiations while examining scope for cost reduction, striving to reduce procurement costs.

Approximately 80% of aluminum wheel purchase amounts are imports from East Asia, and import payments are settled primarily in U.S. dollars and Chinese yuan; therefore, fluctuations in the exchange rates of these two currencies or currency revaluation may adversely affect the Group's consolidated business results and financial condition. The Group seeks to mitigate this risk by setting limits based on projected import amounts each fiscal period and implementing hedges such as forward exchange contracts.

Premium and advanced aluminum wheels are highly preference-driven products whose design and other attributes are susceptible to trends; if the Group cannot sufficiently anticipate changes in the market and industry and fails to develop attractive products, it may not be able to secure expected sales volumes. This could lead to reduced future growth and profitability, adversely affecting the Group's consolidated business results and financial condition. While closely monitoring domestic and overseas market trends, the Group is working on product development that leverages frontline sales information from sales office staff and the sensibilities of brand managers.

The aluminum wheels sold by the Group conform to JWL technical standards and are VIA mark-registered products; however, there is no guarantee that all products are free of defects or that recalls will not occur, and if a large-scale recall or product liability issue occurs, substantial costs will be incurred and reputation will be significantly affected, leading to a decline in sales. Although the manufacturing outsourcing partners carry product liability insurance, there is no guarantee that this will sufficiently cover the final amount of damages. The Group requires manufacturing outsourcing partners to manufacture in accordance with its own quality assurance manual, and strives to maintain and improve quality through checks and follow-ups via the resumption of periodic on-site audits.

For the Group, which operates with a lean, elite workforce, the continuous recruitment and development of capable personnel is essential, with securing the younger generation who will lead the next era being a particularly important issue. The labor market environment is undergoing dramatic changes due to the declining working-age population resulting from the falling birthrate and aging population, as well as the diversification of working styles, and it is considered highly likely that a shortage of personnel to lead the future will significantly affect each company's ability to achieve its business plans. The Group is promoting work-style reforms suited to the times and striving to secure and retain personnel by developing an attractive workplace environment that emphasizes work-life balance.