NPR-RIKEN CORPORATION

The Group's products are mainly geared toward automotive, industrial machinery, and construction applications. In the event of a global economic downturn or slowdown in economic growth, product demand may decline through a decrease in automobile production volumes and construction starts. The Group is working to identify demand trends at an early stage and to optimize inventory and reduce costs, but if demand fluctuations exceed expectations, this may affect business performance and financial condition.

Market prices of key materials such as iron, alloys, hard particles, coal, and resin-based raw materials fluctuate due to supply-demand balance and exchange rate movements, and procurement sources are limited for some materials. The prolonged conflict in the Middle East has also heightened the risk of further increases in raw material and logistics costs and of supply chain delays, which could lead to higher manufacturing costs. The Group is working to diversify procurement sources, select alternative materials, and negotiate price pass-through with customers, but in the event of sudden market fluctuations, this may affect business performance and financial condition.

As the Group conducts overseas business operations and sales activities to overseas customers, it is affected by exchange rate fluctuations arising from foreign currency-denominated transactions. There is also translation risk in the preparation of consolidated financial statements, whereby the yen-converted value may fluctuate even without changes in local currency value. The Group works to hedge such risk through forward exchange contracts and other means, but if fluctuations exceed projections, this may affect business performance and financial condition.

The Group has production and sales bases in North and Central America (the U.S. and Mexico), Europe (Germany), and Asia (Indonesia, China, Taiwan, Thailand, India, etc.), and is exposed to risks of political, economic, and social turmoil in each country. In particular, changes in U.S. tariff policy leading to higher tariff rates could raise sales and manufacturing costs at North American bases, and the Group is considering price pass-through negotiations, review of trade flows, and reconsideration of the production system. The business and financial condition of joint venture partners may also affect the Group's business.

The business related to parts for passenger vehicle engines (passenger ICE) accounts for roughly half of the Group's overall net sales, so a contraction in the market for vehicles equipped with internal combustion engines due to the spread of electric vehicles would directly affect the business. Under its medium-term management policy, the Group is directing management resources toward improving profitability in the ICE domain and developing the non-ICE domain (Next Core Business, New Product Business) to raise its sales ratio; however, if the response to this structural change is insufficient or if the change progresses rapidly, this could have a material effect on business performance and financial condition.

Intense global competition is unfolding in the automotive, industrial machinery, and other major customer industries, and business results are influenced by product competitiveness, supply capacity, technological development capability, and international price competitiveness. The Group is working to develop differentiated products and production technologies, build a technology-proposal-based sales structure, expand evaluation technology services, and strengthen cost reductions, but if these efforts are insufficient, this may affect business performance and financial condition.

If quality defects emerge in products for automotive, industrial machinery, or construction applications, there is a risk of damage compensation to customers and others due to product liability or recalls. The Group strives to maintain and improve quality through external certifications such as ISO9001 and IATF16949 and by building a quality assurance system, but in the event of a large-scale recall or product liability claim, the burden of compensation costs and decline in social reputation may affect business performance and financial condition.

The Group holds confidential information related to research and development, production, and sales, as well as personal information of customers and employees, and utilizes information technology, networks, and systems across its overall business activities, exposing it to the risk of unauthorized access from increasingly sophisticated and complex cyberattacks. The Group has formulated a basic information security policy, strengthened defenses against cyberattacks, and conducted employee training and awareness activities, but if a cyberattack exceeding expectations causes system outages or leakage of confidential information, this may affect business performance and financial condition through business disruption and decline in social reputation.

To realize business portfolio reform (improving profitability in the ICE domain and developing the non-ICE domain), the Group carries out corporate acquisitions, capital alliances, and business restructuring, and changes in the business environment or management and financial problems at invested companies may affect the Group's business. The Group works to reduce risk through careful due diligence and verification of business plans after acquisition, but if unforeseen changes in the environment occur, this may affect business performance and financial condition through impairment of goodwill and intangible assets, among other factors.

With the expansion of global business operations, the Group is subject to a wide range of laws and regulations in each country, including environmental laws, occupational health and safety laws, antitrust laws, anti-bribery regulations, and security export control regulations. The Group has established a Legal and Compliance Department, assigned compliance leaders to each department and subsidiary, and conducted employee training and awareness activities, but if compliance enforcement is insufficient and a legal violation occurs, this may affect business performance and financial condition through penalties, sanctions, response costs, and decline in social reputation.