We see the following aspects as potential risks that may affect the group's business performance and financial position. In addition, even if risks other than those listed below occur, they may have a significant impact on the group's operating results and financial position. By identifying these risks and developing a risk management system, the group strives to avoid risks and minimize the impact of risks when they occur.

Please note that future assumptions or projections in this document are made by the group, based on available information as of the filing date of the Annual Securities Report (June 23, 2025), and not all risks that may affect the group’s business are covered.

1. Changes in the Market Environment

The main business of the group is to supply electronic components to manufacturers of electronic components for automobiles, AV audio equipment, and various electronic products.

Sales in the automotive market accounts for approx. 85% of the consolidated sales, and demand trends for both automotive products and electronic products are greatly affected by global economic conditions. Therefore, if the demand for the group's products drops significantly due to an unexpected deterioration of the global economy or abrupt changes in the markets for automotive products and electronic products, the group's business performance and financial position may be affected. However, we are increasing sales in non-automotive markets such as FA equipment and communication equipment markets to make it a second pillar of the group’s business.

2. Exchange Rate Fluctuations

The group manufactures and sells electronic components worldwide, and transactions between the company and its overseas subsidiaries and affiliates are denominated in US dollars, euros and Thai baht. In FY2024, the ratio of overseas sales to consolidated sales will be 84.0%, while the ratio of overseas production will be approximately 87.1%.

Although a sharp and prolonged appreciation or depreciation of the yen could affect the group's performance and financial position, the group promotes local consumption of local products and hedges risks to mitigate the impacts of exchange rate swings, and so on.

3. Overseas Business Development

The group promotes global business development, and many of our production and sales activities are conducted in the United States, Europe, China other Asian countries. Business expansion into these overseas markets have potential risks of 1) unexpected changes in laws, environmental regulations, or tax systems, 2) occurrence of unfavorable political or economic factors, 3) delays in social infrastructure such as transport delays and power outages, and 4) political change, acts of terrorism, war, epidemics of infectious diseases and other social turmoil and so on. If any of these events take place, the group's performance and financial position may be affected. However, when expanding our business globally, we will carefully analyze and evaluate such risks at both sales and production sites before making decisions.

4. Centralization of Mass Production Facilities

The group centralizes manufacturing of its products at the production subsidiary in China, excluding products manufactured at multiple facilities at the Ibaraki plant, the Philippines production subsidiary, and the Vietnam production subsidiary. In the event of unforeseen circumstances that make it impossible for these production facilities to operate for some reason, it may affect the performance and financial position of the group. We have been rebuilding our mass production facilities while the Akita plant, our second mass production facility in Japan, has already started its operation since April 2025, and we will focus our efforts on distributed manufacturing, local consumption of local products and BCP management.

5. Price Competition

The electronic components industry, where the group operates, is extremely competitive, and there are both Japanese and global peers of different sizes, ranging from large to medium and small-sized, and price competition has been intensifying. If we become involved in competition to lower sales prices, it may affect the performance and financial position of the group. We have acquired a range of unique technologies such as “Floating Board to Board Connector*” and developed new products and new technologies by focusing on proactive innovation. We have been creating customer values by suggesting our products that help our customers reduce TCO (Total Cost of Ownership).
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* A connector designed to move in all or any of the following directions, the pitch direction between terminals, the direction perpendicular to the pitch, and the mating directions, so that mating misalignment can be absorbed.

6. Risks Posed by Product Defects

The group ensures that all products are manufactured in accordance with the international standard on quality management and adopts a production system for minimizing product defects, recalls, and similar incidents. We also have insurance coverage for product liability claims.However, the potential risk posed by product defects, which may lead to large-scale recalls or product liability claims, could lead to substantial increase in costs and the group’s brand loyalty decline, while affecting our financial performance and position. Through leveraging our experience and know-how for earning high trust from global automotive customers, the group pays close attention to detail at every stage from product development to shipment.

7. Risks Posed by Research and Development Activities

The markets where the group operates have strict requirements for technological innovation and cost competition, and it is necessary for the companies in the markets to continuously introduce new products. If the development of new products does not proceed as planned due to rapid technological progress or changes in customer needs, sales growth and profitability may decline in the future, and the group's business performance and financial position may be affected. The group conducts many marketing activities, accurately grasps market needs, and invests in research and development, and equipment necessary for new technology and new product development, as well as production process reform. Therefore, we believe that we can continue to develop new products.

8. Dependence on External Parts Suppliers and Procurement of Raw Materials

The group relies on external suppliers sourcing all major raw materials and some parts. We have built a cooperative relationship with these external suppliers to ensure stable supply. However, in the event of supply shortages due to sudden fluctuations in demand or supplier delays, we may lose competitiveness if we cannot supply our customers or cause delays in delivery. In addition, if market prices of raw materials rise sharply due to changes in the supply and demand relation, etc., the group's production costs could increase, which may affect the group's business performance and financial position. In response to changes in parts markets, we have been reducing costs by promoting in-house production within the group and promoting the localization of international procurement.

9. Accidents and Disasters

In the event of a large-scale disaster that exceeds our expectations, there is no guarantee that we will be able to completely prevent or mitigate the impact of energy blackouts or other events that disrupt business operations, and the group's performance and financial position may be affected. In response to this, we ensure that prevention measures for disasters such as earthquakes have been thoroughly implemented. Also, to prevent damages caused by accidents and natural disasters including fire, wind and flood, etc., we continuously conduct facility inspections, enhance safety devices and fire extinguishing equipment, and perform various safety activities.

10. Risks Posed by Important Lawsuits, etc.

The group has potential risks of litigation, disputes, and other legal proceedings associated with its domestic and overseas business. Intellectual property rights are one of the most important management resources, especially in the electronic components industry, where technological innovation is intense. A third party’s infringement or imitation of the intellectual property right that the group holds through patent applications and design registrations, etc., of its technological innovations, may have a significant impact on the group's business activities. In addition, if the group receives a claim for damages for infringement of a third party's intellectual property rights, its production and sales activities may be restricted or it may be required to pay compensation for these damages, which may affect the group's performance and financial position.

Intellectual property rights, including patent rights, are centrally managed and operated by the Intellectual Property Section of the Engineering Division. In addition, we have a system to share information between developers and designers and the intellectual property rights staff of the Engineering Management Section, as well as to raise and resolve issues on intellectual property rights as needed.

11. Risks Posed by Recruiting Human Resources

The group operates in the electronic components industry, where technological change and competition are intense, and the ratio of overseas sales and production is high. It is important to continuously promote the recruitment and development of human resources with excellent management skills such as organizational operation. Since the number of highly specialized and talented human resources is limited, it may affect our business performance and financial position if we are unable to secure the best talent for our business. Therefore, we are actively recruiting in Japan and overseas.

12. Information Security Risks

Through our business activities, the group may obtain personal information and confidential information of customers and business partners, and we also possess confidential business and technical information.
If this information is leaked, or that important data is destroyed, falsified, or the system is stopped due to unexpected cyberattacks, unauthorized access, computer virus intrusion, etc., this could affect the group’s reputation, profitability, and financial health.
In response to this, the group has established "Information Security Regulations" and an Information Security Committee to ensure that confidential information is properly managed, while establishing and thoroughly implementing a confidential information management system. In addition, we regularly conduct employee educations through online learning system, etc. to improve the information security awareness of executives and employees.In addition, to comply with the GDPR (EU General Data Protection Regulation), which came into effect in May 2018, we have been improving measures in a global context to protect relevant personal information.
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13. Risks Posed by Global Pandemics of Infectious Diseases Including COVID-19

In March 2020, in response to the global pandemic of the new coronavirus, we launched a COVID-19 task force team consisting mainly of the president and executives at the headquarters. We took a range of measures to prevent the spread of infection by taking body temperature measurements, checking physical conditions, wearing masks at work, while promoting remote meetings, staggered commuting hours, and working from home.

As potential risks of such global outbreaks of infectious diseases, epidemic situation or government policies in different countries may also affect the group's business performance and financial position in the future. When it comes to production activities, we reviewed our BCP response in February 2021 to minimize the negative impact of suspended operation due to lockdown measures and have built three key strategies: increasing inventory, reducing equipment lead times by arranging spare equipment for parts currently in production, and deploying a multiple production system by changing the manufacturing system of parts currently in production.

Besides, we will optimize cash management within the group to secure cash on hand in preparation for stabilizing management and employment, and medium- to long-term growth investment in the event of unforeseen circumstances. Specifically, we will focus on optimal allocation of funds among group companies, capex efficiency improvement and expenditure reduction.