MURAKAMI CORPORAITON

As products for the automotive industry account for more than 90% of net sales, fluctuations in automobile production volume and requests for price reductions due to intensifying global sales competition have a direct impact on business performance. Production adjustments by automakers resulting from changes in the geopolitical situation, including in the Middle East region, also constitute a factor causing fluctuations in the Group's production volume. As countermeasures, the Group is promoting diversification of its customer portfolio, expansion of products in the advanced visibility technology field, and cost reduction activities through VA/VE and global procurement reform.

As the Group operates businesses in six countries—Thailand, Indonesia, China, the United States, Mexico, and India—changes in trade agreements, tariff systems, and political and economic conditions in each country, exchange rate fluctuations, and unforeseen events such as infectious diseases, natural disasters, and terrorism may cause disruptions to production and sales activities. Legal risks such as compliance requirements arising from revisions to related laws and regulations, as well as labor issues and litigation, also exist. The Group works to mitigate these impacts through the promotion of local production and local procurement, foreign exchange hedging policies, and strengthening of Group internal controls and governance structures.

If quality defects occur in products or a recall arises, in addition to the burden of substantial costs, a decline in future sales due to loss of credibility may occur. As an automotive parts manufacturer, quality issues are a material risk directly linked to business continuity. The Group aims to prevent recurrence through continuous improvement of its quality management system in compliance with IATF16949, prevention activities using FMEA and PPAP, strengthened traceability, and Group-wide quality audits.

Supply shortages due to sudden increases in demand, price surges caused by market changes, and supply disruptions due to disasters or accidents affecting suppliers may affect the production system and business performance. Changes in the geopolitical situation, including in the Middle East region, also pose a risk that price surges in raw materials, including naphtha, a key raw material for parts, and rising energy prices could increase manufacturing costs. The Group works to reduce the risk of supply disruption through the promotion of globally optimized procurement, securing alternative sources for critical materials, and conducting risk assessments and confirming business continuity measures with key suppliers.

While the Group is actively investing in the development of next-generation technologies for Automotive Rearview Mirrors, failure to respond in a timely manner to market needs, supply chain restructuring due to the entry of manufacturers from other industries associated with the shift to EVs, and the unexpected emergence of new technologies may lead to a decline in profitability and growth potential. The Group is promoting elemental technology development based on its technology roadmap, investment in electrification and advanced visibility technology, and strengthening of its technological foundation through collaboration with external companies and universities.

In certain regions, intellectual property rights may not be fully protected, and the Group may not be able to effectively prevent third parties from manufacturing similar products. On the other hand, if the Group is alleged to have infringed on the intellectual property rights of a third party, substantial costs such as settlement fees, damages, and royalty payments may arise. The Group reduces the risk of infringing on third-party rights through intellectual property education and prior art/infringement prevention investigations, and has established a rapid response system in cooperation with relevant departments and external experts in the event an infringement case occurs.

If a security incident occurs due to cyberattacks, unauthorized access, computer viruses, or similar causes, in addition to the leakage, tampering, or loss of customer technical information and personal information, this may result in the suspension of operations, production, and logistics due to information system shutdowns, as well as compensation payments, legal penalties, loss of credibility, and increased recovery costs. The Group strives to minimize impacts through the implementation of technical measures and training based on its information security policy, continuous monitoring of the network across the Group, and the establishment of incident response plans and recovery systems.

If business activities with acquired businesses or capital alliance partners are inconsistent with management policy and fail to achieve expected results, or if the business performance or business environment of an invested company deteriorates or changes, impairment of goodwill, investment losses under the equity method, or losses on business divestiture may affect business performance. The Group conducts synergy verification and risk assessment through due diligence involving external experts prior to executing investments, and monitors the progress of strategy execution through company-wide projects based on PMI plans after investments are made.

As the head office and core plants are concentrated in the central region of Shizuoka Prefecture, in the event of a large-scale earthquake or other disaster, corporate activities including head office functions, production, procurement, sales, and development may be suspended, potentially having a material impact on business performance. Although the Group strives to ensure business continuity by diversifying production and procurement across five domestic sites and six overseas countries, concentration risk remains. The Group has established a system for early recovery through the formulation and continuous review of its BCP, conducting drills, strengthening earthquake resistance and disaster prevention measures at key sites and facilities, and remote backup of data.

As a physical risk, large-scale disasters such as typhoons and floods may damage plant facilities and the supply chain, potentially leading to the suspension of production and sales activities. As a transition risk, delays in responding to stricter greenhouse gas emission regulations and changes in market needs may affect business performance through increased investment burdens and costs. The Group conducts risk assessments through its Carbon Neutrality Promotion Subcommittee and reflects the results in its management strategy, and has set a target of achieving substantially zero Scope 1 and 2 total emissions by 2035 at Murakami Kaimeido's main entity (head office, Tsukiji, Fujieda, and Ohigawa), promoting the installation of solar panels and the introduction of renewable energy.