JVCKENWOOD Corporation

Geopolitical tensions (Russia-Ukraine, Middle East situation) and strengthened economic security policies have manifested in rising raw material prices, logistics delays, and increased transportation costs. The surge in data center investment accompanying the spread of generative AI has tightened supply and demand for high-performance semiconductors, raising the risk of increased procurement difficulty, longer lead times, and price increases for semiconductor memory used by the Group. While the Group is promoting multi-sourcing, strategic inventory holding, and diversification of procurement sources as countermeasures, if supply constraints exceed expectations, this could adversely affect business performance and financial condition through product supply delays and cost increases.

Instability in the Red Sea/Suez Canal shipping route has forced changes to transportation routes between Asia and Europe (via the Cape of Good Hope), resulting in longer logistics lead times and higher ocean freight rates. Risks are also emerging from concerns over prolonged closure of the Strait of Hormuz, which could tighten energy supply and cause sharp increases in fuel prices, further pushing up maritime and air transportation costs. In Japan, transportation capacity constraints due to driver shortages and rising labor costs associated with the '2024 Problem' are expected to continue. The Group is responding by reviewing total product costs and adjusting shipping frequency, but if problems occur beyond expectations, this could adversely affect the business, business performance, and financial condition.

Changes in the macroeconomic environment, such as global recession, prolonged inflation, rising interest rates, and exchange rate fluctuations, may affect sales volume and unit prices of products for individual customers, and may also cause public institutions and corporate customers to reduce capital investment or postpone/cancel projects. In particular, during periods of economic slowdown or heightened political uncertainty, there is a risk that the order environment may fluctuate due to the effects of nationalistic policy management. The Group continuously monitors changes from forecasts and responds in accordance with its risk management plan, including contingency plans, but if simultaneous deterioration occurs in multiple markets, this could have a material adverse effect on business performance and financial condition.

More than half of revenue is generated overseas, and the Group is affected by exchange rate fluctuations in foreign currency-denominated transaction costs, prices, and the translation of consolidated financial statements into yen. Generally, the Group has an asymmetric sensitivity in which business performance deteriorates when the yen appreciates against the euro and improves when the yen appreciates against the US dollar. While the Group responds through hedging transactions such as forward exchange contracts and by increasing the proportion of fixed-rate funding, if long-term unfavorable exchange rate fluctuations or sharp interest rate increases occur beyond expectations, this could adversely affect business performance and financial condition.

Advances in digitalization, AI, and software technology are blurring the boundaries between products and services, leading to entry from adjacent industries and different business sectors, and intensifying cross-industry competition. There is a risk that organizational restructuring, M&A, and aggressive pricing strategies by competitors will make it difficult for the Group to maintain market share and secure profitability. The Group is promoting the shift of management resources to priority business areas, strengthening differentiating technologies, and partner collaboration, but if changes in the competitive environment materialize at a speed or scale exceeding expectations, this could have a material adverse effect on the business, business performance, and financial condition.

As the scope and complexity of technology areas such as AI, software, and data utilization expand, continuous investment of funds and resources in research and development is required, and significant investment may also be needed for environmental technology development such as decarbonization measures. There is a risk that rapid technological innovation by competitors and increasing dependence on external platforms will reduce the competitive advantage of the Group's products and services. If securing and developing specialized personnel in the AI and software fields does not proceed as planned, or if personnel attrition occurs, commercialization and development may stagnate, potentially leading to a decline in market share and difficulty in securing revenue.

There is a risk of unauthorized access leading to the leakage of customer personal information, transaction information, and confidential information shared with supply chain partners, as well as a risk of system malfunction or service delivery delays due to cyberattacks exploiting product vulnerabilities. A security incident actually occurred in February 2024, and the Group is continuously working to improve the security management system at production sites. The Group is building a company-wide incident response system centered on JK-CIRT/CC and promoting security education, but if such an event occurs, it could have a material impact on the business, business performance, and financial condition through damages compensation, increased response costs, and damage to brand value.

There is a risk that the Group's competitiveness will decline if employees with advanced expertise and experience leave the company due to relatively lower wage levels and treatment compared to other companies, or if appropriate replacement of personnel is not achieved following the retirement of employees in their 50s, who account for a high proportion of the workforce, making it difficult to pass on technical and operational know-how. The Group is addressing this through the practice of human capital management based on 'VISION2030' formulated in May 2026, the development of multi-skilled personnel, strategic recruitment, and the promotion of the career development program 'JVCKENWOOD CAREER DESIGN.' However, if these measures do not function as planned, this could adversely affect the sustainability of the business.

In Japan and various other countries and regions, laws and regulations such as environmental regulations, personal information protection, competition law, and security export controls tend to be continuously strengthened or newly established, and if there are delays in response or differences in interpretation, additional cost burdens, fines, or restrictions on business activities may occur. If a compliance violation occurs, this could result not only in administrative sanctions and litigation but also in medium- to long-term adverse effects such as a decline in social credibility, damage to brand value, and deterioration of relationships with business partners. The Group is working to reduce risk through the development of the 'JVCKENWOOD Group Compliance Code of Conduct,' the operation of an internal whistleblowing system, and compliance training across the Group.

In addition to flood risks in Southeast Asia and the probability of occurrence of a Nankai Trough earthquake, a military conflict between the United States/Israel and Iran broke out in February 2026, and tensions continue to remain high throughout the Middle East. The Group also recognizes the possibility that risks related to the Taiwan Strait may materialize. If these risks materialize, production sites may be forced to suspend operations, the supply chain may be disrupted, and costs may increase due to soaring raw material and energy prices, potentially resulting in decreased sales and the recording of extraordinary losses in the event of a major disaster. The Group is promoting business continuity management (BCM), including the development of crisis response manuals, BCP drills, safety confirmation drills, and insurance coverage, but if damage exceeds expectations, this could adversely affect business performance and financial condition.