YAMATO Mobility & Mfg.Co., Ltd.

In the fiscal year under review, the Company recorded an operating loss of ¥441 million, and cash flow from operating activities was a negative ¥430 million. The primary causes were the underperformance of the Chinese subsidiary and delays in the start of sales in the mobility business, and the Company recognizes that an event exists which raises material doubt about its ability to continue as a going concern. As countermeasures, the Company has transferred its equity interest in the Chinese subsidiary, and expects improvements in earnings and cash flow from the following fiscal year onward through progress in negotiations with a major customer in the EV Related Business.

If the assumptions underlying the estimation of impairment losses on fixed assets change due to revisions to business plans or changes in the market environment, additional impairment losses may occur, which could adversely affect the financial position and operating results. The Group carefully examines the identification, recognition, and measurement of impairment indicators, but future uncertainties cannot be completely eliminated.

The Group writes down the book value of inventories whose turnover period exceeds a certain length as excess inventory, but this involves uncertainty as it includes assumptions based on future demand forecasts. If changes in the business environment undermine the assumptions regarding saleability, additional valuation losses may occur, which could affect the financial position and operating results.

At the Philippine subsidiary (BIG PHILIPPINES CORPORATION), factors such as shifts in U.S. tariff policy under the new administration, low growth in the Chinese market, local legal regulations and business practices, and supply chain disruptions or energy price spikes caused by pandemics may affect operating results and financial position. Although the Company conducts regular management audits and other measures, it is difficult to completely avoid unforeseeable events.

The top three customer groups account for a substantial portion of consolidated net sales, and if there are changes in transaction policies or if customers relocate manufacturing sites, scale down operations, or change product lines, this could have a material impact on operating results and financial position. There is also a risk that the Company's products and technologies may no longer meet customer needs, and the Company is continuously working to update its technologies and acquire the latest technologies.

If the Company is unable to pass on to sales prices the cost increases resulting from rising prices of key raw materials such as petrochemical products and steel, as well as costs associated with the shift to eco-materials, this could adversely affect operating results and financial position. There is also a risk that disruptions to raw material manufacturers' production and logistics due to earthquakes, wind and flood damage, pandemics, and other causes could make it difficult to manufacture and deliver products. The Company seeks to mitigate these risks through market information gathering and diversification of raw material sources.

The Company procures working capital and capital expenditure funds mainly through borrowings from financial institutions and others, and borrowing costs may rise due to changes in government interest rate policy or a decline in the Group's creditworthiness. The Company strives to optimize interest-bearing debt and works to grasp financial trends through information sharing with financial institutions.

Fluctuations in exchange rates may affect operating results and financial position through the translation into yen of items denominated in the local currency of the Philippine subsidiary and through foreign-currency-denominated import and export transactions. Although measures such as hedging through forward exchange contracts and changing the functional currency of the Philippine subsidiary to U.S. dollars have been implemented, it is not possible to eliminate all risks.

In the event of a large-scale earthquake, wind or flood damage, pandemic, or other event, significant disruptions could occur to the functions of various sites, including the Kawagoe head office plant and affiliated subsidiaries, potentially resulting in plant shutdowns and supply disruptions to customers. Despite measures such as the use of emergency contact networks, establishment of business continuity planning systems, infection prevention measures, and remote work, these measures may not fully prevent adverse effects on operating results and financial condition or damage to the Company's reputation.

As reliance on information systems in manufacturing and sales processes increases, cyberattacks such as ransomware attacks and supply chain attacks could cause production line stoppages, leakage of confidential information, and ripple effects across the entire supply chain. While the Company has established information security policies and standards as well as an initial incident response system, if a security incident occurs due to unknown attack methods or human factors, it could result in production delays, impacts on customers, damage to brand value, and legal liability, which could have a material impact on operating results and financial position.