AUTOBACS SEVEN CO.,LTD.

Foreign exchange fluctuations, deterioration of the Japanese economy, sluggish personal consumption, and changes in competitive advantage resulting from shifts in domestic and international conditions may adversely affect businesses such as car accessory wholesale/retail and vehicle inspection, maintenance, and sales. As countermeasures, the Group is pursuing expansion of locations and business domains through M&A, strengthening high-value-added services such as vehicle inspection, maintenance, and sales, and improving the efficiency of logistics and inventory management.

The development of driver assistance functions and autonomous driving technology and the spread of electric vehicles may change the demand for and market size of replacement parts sold by the Group, and if the Group cannot flexibly respond to diversifying customer needs, this may affect its business performance and financial condition. As countermeasures, the Group is promoting collaboration with domestic and overseas automakers, entry into the EV market through the opening of BYD authorized dealerships, and acquisition of specific maintenance certification (electronically controlled device maintenance) at all vehicle-inspection-designated factories.

Increasingly sophisticated cyberattacks such as ransomware, targeted attacks, and unauthorized intrusions via the supply chain could cause prolonged IT system outages or leakage of personal or confidential information, disrupting store operations, logistics, and customer service, and potentially having a material impact on business performance through loss of social trust and damages liability. As countermeasures, the Group implements communication monitoring via firewalls, zero-trust information protection measures, e-learning and targeted-attack email drills for all employees, risk diversification through multiple data centers, and development of BCP response systems.

Based on the 2024 Medium-Term Management Plan, the Group is actively pursuing corporate acquisitions and capital alliances in businesses such as vehicle sales and tire sales; however, if integration and collaboration do not proceed as planned, synergies may not be realized and growth may not materialize, or corporate culture integration may prove insufficient, potentially adversely affecting business performance and financial condition. As countermeasures, the Group conducts thorough due diligence utilizing external organizations, promotes post-merger integration (PMI) activities, and conducts periodic reviews based on criteria for downsizing or exiting low-profitability businesses.

Climate change such as cool summers or warm winters may reduce demand for seasonal products such as studless tires or shift the timing of sales, leading to a decline in net sales. In addition, if the introduction of carbon taxes or expansion of various environmental regulations progresses, this may affect business performance through constraints on business activities and increases in operating and equipment costs. As countermeasures, the Group is promoting the use of renewable energy toward achieving carbon neutrality by 2050, the rollout of environmentally conscious stores, and initiatives in EV sales and maintenance.

At retail stores handling car accessory sales, vehicle inspection, maintenance, and vehicle sales, accidents involving waste disposal, handling of hazardous substances, or pit work could not only cause direct damage but also indirectly affect business performance through a decline in customer numbers due to deteriorating customer impressions. As countermeasures, the Group conducts guidance and education through training, thoroughly disseminates work manuals, and carries out continuous inspection and improvement through a compliance check program.

Goodwill has increased significantly due to active M&A activity, and if the profitability of acquired businesses or existing stores deteriorates such that the book value falls below the recoverable amount, a new impairment loss would need to be recorded, potentially having a material impact on business performance and financial condition. The Group applies accounting standards related to impairment of fixed assets and works to manage this risk through periodic monitoring.

If a natural disaster such as an earthquake or typhoon occurs in areas where stores are located or at business-related facilities, this could cause physical damage to facilities and staff shortages due to injury or death of officers and employees, potentially affecting business performance through product damage, decreased net sales, and restoration costs. As a countermeasure, the Group has formulated a BCP (business continuity plan) and works to identify issues and reduce risk by conducting drills twice a year assuming various disaster scenarios.

If an accident attributable to a private brand product occurs, this could damage customer trust and harm the brand, potentially affecting business performance and financial condition. In addition, if procurement of products from within Japan or overseas becomes difficult due to changes in trade policy, geopolitical risk, natural disasters, or economic conditions in various countries, or if demand declines due to rising retail prices caused by soaring procurement costs, business performance may also be affected. As countermeasures, the Group is working to establish strict quality inspection standards and continuously diversify its procurement sources.

Securing and developing personnel with specialized expertise in vehicle maintenance and inspection, as well as diverse talent that contributes to innovation, is essential, and securing personnel with diverse expertise has become an urgent issue as business domains expand through M&A. If changes in the employment environment make it difficult to continuously hire appropriate personnel, this could hinder the securing of sales for existing businesses and the pursuit of growth strategies, potentially affecting business performance. As countermeasures, the Group is promoting chain recruiting and hiring support, building HR systems that accommodate diverse work styles, and establishing support programs for obtaining various qualifications.