Fukoku Co.,Ltd.

In November 2024, fraudulent accounting practices and embezzlement of funds by a former employee of a consolidated subsidiary were discovered. Should a material weakness, fraud, or error occur in internal controls, it could have a significant impact on business performance, financial condition, and social credibility. The material weakness requiring disclosure as of the end of the fiscal year under review has reportedly been remediated, and the Group is strengthening its management system through the Group Employee Code of Conduct, development of management books, and regular hearings by administrative departments, among other measures.

Automotive-related parts account for more than 80% of net sales, and automakers' promotion of EV transition and the consolidation or global production system restructuring of primary parts manufacturers could significantly affect demand trends. The structural challenge is the high degree of dependence, as business performance is influenced by the management strategies and production trends of automakers and primary parts manufacturers. The Company is considering countermeasures through routine information gathering and appropriate decisions on necessary technology development investments.

Should a large-scale recall or product defect leading to product liability claims occur, it could have a material impact on business performance and financial condition. The Company works closely with customers and business partners throughout the entire process from design to product release, building in process, functional, and quality assurance. In the event of an incident, the policy is to strive for prompt recovery and to maintain the supply system.

The Company procures raw materials and parts from numerous external suppliers, and business performance could be affected by price surges, supply shortages, or supplier business closures. Premised on maintaining good relationships with suppliers, the Company continuously promotes selective purchasing, switching of suppliers, and the expansion and optimization of the supplier base. It also works to understand suppliers' management conditions and to provide necessary support.

As the Company has numerous overseas business partners, alliance partners, and business locations, fluctuations in exchange rates could affect business performance and financial condition. In addition to continuously monitoring exchange rate trends, the Company takes measures such as netting and forward contracts as necessary to mitigate negative impacts.

The Company holds personal and confidential information of customers and business partners, as well as confidential sales and technical information, and business performance and financial condition could be affected if cyberattacks or other incidents lead to information leaks, destruction, or system outages. The Company is building robust security for the Group network and continuously evolving it, while striving to provide information security education and awareness activities within the Group.

As the Company operates widely both domestically and internationally, the occurrence of natural disasters such as earthquakes and tsunamis, war, power shortages, infectious disease pandemics, terrorism, strikes, and other events could cause delays in raw material procurement, production, sales, and logistics, as well as decreased orders or suspension of business transactions. The Company has formulated a BCP anticipating large-scale natural disasters, and in the event of an emergency, establishes a crisis response organization to ensure employee safety and minimize the impact on management through Group-wide cooperation and mutual support.

As the Company owns factories and business locations around the world, business performance could be affected by policy changes or changes in economic conditions under the political systems of each country. The Company strives to proactively gather information and formulate countermeasures anticipating various scenarios.

The automotive parts industry is subject to extensive environmental and other legal regulations, and the costs of compliance with such regulations could become significant. The Company strives to routinely obtain information and takes measures to reduce the burden, such as material changes, improvements to manufacturing methods and equipment, and changes in production locations.

Should strategic alliances or joint ventures currently underway become unsustainable due to changes in a partner's management policy or business environment, business performance and financial condition could be affected. The Company seeks to avoid unforeseen situations through maintaining good communication, information exchange, and necessary negotiations with partners, while maintaining a system capable of responding promptly to changing circumstances.