NGK INSULATORS, LTD.

There is a risk that demand for the company's core products, ceramics for automotive exhaust gas purification (Honeycam ceramic and sensor product groups), may fluctuate due to the shift toward non-internal combustion engine vehicles such as EVs and FCVs and changes in consumer values. The internal combustion engine vehicle market is expected to peak out around 2030, and if the shift progresses faster than anticipated or if the response to exhaust gas regulations is delayed, the company may fail to achieve its expected performance. The company is addressing this through the development and launch of new products and high-performance products and continuous monitoring of demand trends, but the residual risk cannot be eliminated.

There is a risk that if competing manufacturers rise in China and gain competitiveness exceeding the company's expectations, the company may lose part of its market share in automotive exhaust gas purification ceramics products. As a countermeasure, the company is strengthening its competitiveness through technological capabilities that anticipate environmental regulations and stable supply capacity; however, a residual risk remains that could adversely affect business performance and financial condition if competitors grow beyond expectations.

The Digital Society Business, which supplies components for semiconductor manufacturing equipment, composite wafers for SAW filters, HDD actuators, and other products, is significantly affected by the supply-demand situation of semiconductors, sales trends of final consumer goods, and data center investment trends. Given the rapid pace of technological innovation, there is a risk of losing market share if the company fails to timely develop and launch new technologies and products that meet key customer needs, and the company may fail to achieve its expected growth level if innovative inventions lead to significant changes in manufacturing processes. The increasing complexity of export regulations in various countries is also recognized as a performance risk factor.

The company is implementing R&D on the scale of ¥200 billion over five years from 2026, aiming for ¥100 billion in sales from new products and new businesses by 2030 (New Value 1000). However, there is a risk that the creation and commercialization of new products may not proceed as planned if achieving market fit or responding to required timing proves difficult. Technology and product development involve many uncertain factors, and competition among technologies is becoming more complex, creating a possibility that inputs may not translate into sufficient results. The three divisions—the NV Promotion Division, the R&D Division, and the Manufacturing Technology Division—are collaborating with business divisions and utilizing external resources to address this, but the residual risk cannot be eliminated.

There is a risk that external cyberattacks, unauthorized access, or system malfunctions could cause data processing stoppages, and theft, destruction, tampering, or loss of data. The company extensively utilizes IT systems in operations such as order receipt, sales, production management, accounting, and R&D, and its dependence on information systems is increasing along with the expanded use of digital technology. In fiscal 2025, the company established a Cybersecurity Countermeasures Headquarters and developed an emergency response system; however, given the escalating and increasingly sophisticated nature of cyberattacks year by year, the residual risk of adverse effects on social credibility, business continuity, and business results remains.

With overseas sales accounting for more than 70% of total sales, yen appreciation poses a risk of reducing sales and profits and adversely affecting business performance. The company hedges this risk through production at the point of demand, fund procurement in local currencies, and forward foreign exchange contracts; however, a residual risk remains that could adversely affect business operations, performance, and financial condition if exchange rate fluctuations occur beyond expectations.

There is a risk that supply chain disruptions caused by geopolitical risks, disasters, pandemics, and other factors, as well as rising material prices, energy costs, and logistics costs, could increase manufacturing and sales costs and adversely affect business performance. In particular, for critical materials, dependence on specific regions or suppliers and trends in economic security policies of various countries could create supply constraints and price fluctuations. The company is implementing countermeasures such as inventory management, diversification of procurement sources, and multiple sourcing; however, a residual risk of adverse effects on business operations, performance, and financial condition remains in the event of sudden changes in international circumstances or supply chain disruptions exceeding expectations.

There is a risk that the introduction and strengthening of carbon pricing systems, tightening regulations in various countries, advancing disclosure requirements, and shifts in energy composition could increase business costs and affect business operations. Delays in addressing climate change or failure to achieve targets could also lead to lower stakeholder evaluations and lost business opportunities. The company identifies and evaluates risks in line with the TCFD framework and responds based on its Carbon Neutral Strategy Roadmap and Environmental Action Plan; however, a residual risk remains that additional costs could arise and adversely affect performance if events occur outside the assumed scenarios.

Competition for talented personnel is intensifying due to labor market fluidity and changes in the employment environment, creating a risk that the company may be unable to acquire personnel suited to its business strategy, including DX talent and global talent. In particular, if the company fails to secure and develop personnel with a challenging mindset in areas such as R&D and new business creation, there is a possibility of lost opportunities and adverse effects on important decision-making. The company is implementing measures such as diversifying recruitment methods, an in-house DX study program, and language training; however, a residual risk remains that could affect the achievement of the Group Vision and New Value 1000 if these measures do not proceed as planned.

There is a risk that large-scale earthquakes, fires, wind and flood damage, infectious diseases, and other disasters could render certain sites inoperable, halting production activities. The company has established a BCP Countermeasures Headquarters headed by the President and is promoting BCP across the group, implementing measures such as diversification of manufacturing sites, multiple sourcing of suppliers, and disaster mitigation measures for buildings and facilities; however, a residual risk remains that could adversely affect performance and financial condition through prolonged production stoppages if events beyond expectations cause serious damage to production equipment at major manufacturing sites or long-term supply disruptions occur in regional infrastructure.