UNIVANCE CORPORATION

While the direction toward electrification for carbon neutrality has been indicated, a multi-pathway trend is progressing in which internal combustion engines, electrification, and hybrid technologies coexist due to differences in each country's policies, infrastructure, and consumer preferences. If the Group fails to appropriately capture market needs and technological trends, this could lead to a decline in competitiveness and affect business performance and financial condition. The Group is working to enhance the competitiveness of existing businesses and create new business opportunities by building a business structure that can flexibly respond to the diversification of market needs.

Global increases in prices and wages, monetary policy trends, the emergence of geopolitical risks, and changes in trade policy may overlap and affect demand trends in the automotive markets centered on North America, Japan, and Asia, as well as customers' production plans. In particular, the impact of U.S. trade policy remains uncertain going forward, and it is currently difficult to incorporate this into earnings forecasts. Fluctuations in product demand and increases in procurement costs and labor costs may affect business performance and financial condition.

Against the backdrop of heightened geopolitical risk, instability in international logistics, and restructuring within the automotive parts industry, the procurement environment for raw materials and parts is structurally becoming more uncertain, with fluctuations becoming the norm. Fluctuations in raw material and energy prices as well as rising labor costs also remain ongoing challenges; if stable procurement becomes difficult or procurement costs rise, this may affect production activities and profitability. The Group is working to enhance competitiveness and strengthen its corporate foundation through flexible business operations that take the entire supply chain into account.

If quality defects or product issues occur due to problems in design or the manufacturing process, this may affect business performance and financial condition through the occurrence of recalls and compensation costs, as well as a decline in customer trust. The Group engages in continuous improvement based on market and customer information under its quality management system, and also undergoes audits by third-party organizations. The Group positions quality that supports improved customer satisfaction as an important management element and is working to strengthen its corporate foundation.

As reliance on information systems increases across processes such as design, production, procurement, and sales, risks such as unauthorized access, information leaks, system failures, and business disruption are increasing due to the sophistication and increasing cunning of cyberattacks. If the integrity or availability of information cannot be ensured, this may hinder prompt decision-making and business execution, affecting the efficiency and competitiveness of business activities, and could also lead to leaks of important information and a decline in customer trust. The Group places importance on protecting information assets and ensuring the integrity and availability of information, and continuously reviews and responds to changes in the business environment and risks.

As the Group is headquartered in the Tokai region, if a natural disaster such as an earthquake occurs, business activities may be affected by damage to facilities, business interruption, and disruption of logistics. In the case of a large-scale, widespread natural disaster, production and supply across the entire automotive industry may also be affected. The Group has established an initial response system through its Disaster Prevention Committee and is working on responding to events that could affect business continuity as an important management issue.

If compliance risks materialize—not limited to violations of laws and regulations but also including issues related to harassment and human rights—this may affect business performance and financial condition through the occurrence of damages compensation and a decline in social credibility. The Group continuously identifies and reviews compliance risks under a company-wide risk management system, and works to prevent problems before they occur, detect them early, and minimize damage by sharing awareness of issues between management and the field. The Group positions compliance as an important management issue underpinning its corporate foundation and continues to address it.