Risk Factors

Risks that can affect NIDEC's operating results, stock price, and financial condition include the following.

１．Management strategy risks

（１）Risks related to political and economic downturns

【Risk details】
We have more than 300 group companies in more than 40 countries around the world. We develop our business globally, and our overseas sales account for about 90%. As a result, changes in political and economic conditions in the countries and regions in which we operate may have an impact on our operating results and financial position. In particular, the emergence of protectionist trade policies, as typified by the trade issues between the United States and China in recent years, export restrictions on rare earths and other important raw materials by certain countries, and the materialization of geopolitical risks, such as heightened tensions between countries and regional conflicts, may affect us in the following ways.
- Fluctuations in demand for products and services
- Difficulty in procuring and soaring prices of raw materials and parts
- Supply chain disruption and inefficiency
- Increase in manufacturing and logistics costs
- Rapid fluctuations in exchange rates
- Restriction or suspension of business activities
A combination of these events could have a negative impact on our operating results and financial position.

【Main countermeasures】
We are taking the following measures to minimize the impact of the above risks.
- Optimization of business portfolio and market diversification
Avoid excessive dependence on specific countries and regions and develop business strategies tailored to the characteristics of each market. At the same time, we will diversify risk by actively entering growing markets and diversifying our businesses through product and technological development.
- Promotion of the “Made in Market Strategy”: opening of business sites and local production for local consumption
In major markets, we will establish an integrated system covering development, production, sales, and service to respond quickly to the needs of local customers and reduce the impact of trade barriers such as tariffs and geopolitical fluctuations.
- Strengthening and diversifying supply chains
In order to avoid dependence on specific suppliers for important parts and raw materials, we will constantly promote the use of multiple suppliers and the development of alternative suppliers. In addition, we will improve the flexibility and resilience of the entire supply chain through the optimal placement of production sites and the sophistication of inventory management, creating a system that can respond to unexpected situations.
- Strengthening of information gathering system and prompt decision making
We will collect and analyze information on political and economic trends, trade policies, and changes in laws and regulations in each country and region in a timely and accurate manner, and work to develop a system that utilizes this information in management decisions. As necessary, we will consider the transfer of production sites and the flexible review of business strategies.

（２）Risks related to changes in the technological environment and industrial structure

　【Risk details】
Rapid technological innovation and changes in the industrial structure could have a serious impact on our business model. In particular, with the evolution of AI and progress in autonomous driving technology, there is a possibility that demand for conventional products will decline sharply. For example, the evolution of electric motors and sensor technology could threaten demand for conventional machine parts. In addition, the emergence of new market players and the rapid evolution of technology in an increasingly competitive environment may threaten our market share. Failure to respond appropriately to these changes could result in lower sales and profits.

【Main countermeasures】
We are taking the following measures to respond appropriately to changes in the technological environment and industrial structure.
- Strengthen the research and development division
We will respond quickly to new market needs by focusing on the development of next generation technologies.
- Promoting the introduction of external technologies and joint development
We will actively pursue strategic alliances and alliances with other companies to enhance our competitiveness. In particular, we will strengthen our partnerships with start up companies and establish a system for quickly incorporating innovative technologies.
- Ascertaining customer needs
We will strengthen our marketing research to accurately grasp changes in customer needs and review our product portfolio.
- Improvement of engineers' capabilities
Knowledge of the latest technologies is shared throughout us, including periodic workshops with in house technicians and specialists, to increase flexibility in the changing technology environment.

（３）Risks related to competition

　【Risk details】
We are exposed to intense competition in the various markets in which it operates. In particular, in the automotive and consumer electronics markets, competition continues to intensify due to the emergence of local manufacturers in emerging countries. Under the following circumstances, our competitiveness and profitability may decline.
- When competitors launch a new product faster than our technology development to secure superiority in the market
- When it becomes difficult to reduce costs due to a sharp rise in raw material prices or disruption in the supply chain, and we are placed at a disadvantage in price competition
- Competitors introduce new business models or services that increase customer choice and reduce demand for our products
- If our competitive environment becomes more severe due to the reorganization of the industry and merger or tie up of competitors
- Inability to adapt to local regulations and needs in international markets, resulting in loss of competitiveness

【Main countermeasures】
We will establish the following five core business areas based on market trends and maximize collaboration and synergies within our group to secure a competitive advantage.
- Base of AI society
- Sustainable infrastructure and energy
- Efficient manufacturing
- Better Life
- Mobility innovation
Please refer to pages 8 to 10 of the Integrated Report 2024 for details on our initiatives in each of the five core business areas.
(https://www.nidec.com/en/sustainability/integrated-report/2024/)

（４）Risks related to prior investments for anticipated customer demands

　【Risk details】
In anticipation of increased demand, we may expand its production facilities in advance of orders or place advance orders for parts and materials in consideration of lead time. This entails the following risks.
- If demand is lower than forecast, the operation rate of the fixed assets will decrease, resulting in an increase in depreciation and a write down of the inventories due to excess inventory, which has a negative impact on the operating results.
- There is a risk that our products may lose competitiveness in the market due to new products or technological innovation of competitors, and as a result, our market share may decrease.
- Risk that the planned investment may not achieve the expected return due to changes in the economic environment or changes in customer needs
- Risk of losing market share due to failure to meet customer requirements if demand is underestimated and necessary capital investment is not made

【Main countermeasures】
We are taking the following measures to achieve sustainable growth.
- ROIC (Return On Invested Capital) Management
We have introduced ROIC as one of our management indicators and have set a target of achieving a ROIC of 12% or more. We are promoting improvement activities from both the profitability and capital efficiency perspectives.
- Introduction of a new mechanism that contributes to investment decisions
In making investment decisions, we will clearly identify businesses with relatively high profitability and businesses that are expected to grow in the future. We will also build a new structure to support its business portfolio strategies so that the funds generated by its businesses can be allocated in an optimal manner.

（５）Risks related to M&A

【Risk details】
We have achieved much of our growth by acquiring and otherwise investing in other companies that have provided us with complementary technologies, product lines, marketing and sales networks, and customer base. The continued success of our acquisition and investment activities constitutes a key factor in achieving our current business strategy. In a rapidly changing market, we may be unable to keep pace with the pace of market growth if we are unable to properly select and acquire the technologies necessary to change our business model. In addition, an inability to find suitable acquisition or investment targets could have material adverse effect on our business, operating results and financial position. Although we believe that these acquired assets appropriately reflect the future profitability achieved through the efficient integration of the acquired businesses, we may not be able to generate the estimated profit due to a deterioration of the business environment and others. In that case, we will need to recognize an impairment of these assets, which could adversely affect operating results and financial position. Furthermore, by taking new acquisition measures such as acquisition without consent, there is a possibility of reputational risk arising from negative campaigns against our acquisition policy.

【Main countermeasures】
We are taking the following measures to reduce M&A risk.
- Companies to be acquired are selected in line with our business strategy
- Purchase at a reasonable price through thorough prior investigation
- Prompt and thorough post acquisition PMI
- Deeply instill our management philosophy and management methods in all employees and create synergies by entering our group while improving the corporate value of the acquired company and minimizing the risk of goodwill impairment
- Advance preparation of public relations strategies such as media communications related to M&A activities

２．Business operation risks

（１）Risks related to recruiting and retaining highly skilled personnel

【Risk details】
In order to achieve its vision, “a global company that grows sustainably beyond 100 years” and “the world’s leading solution providing business group that solves numerous problems for the people in the world,” we believe that it is essential to secure excellent human resources with a high level of expertise and those who can play an active role on a global scale. Amid concerns that competition for human resources will intensify due to factors such as the increasing mobility of human resources and an aging society with a declining birthrate, failure to secure these human resources could result in a loss of competitive advantage and have an adverse impact on business growth. In addition, if the outflow of excellent human resources continues, it may lead to the outflow of proprietary technologies and a decline in long term competitiveness.

【Main countermeasures】
We have taken the following measures to recruit and retain highly specialized personnel.
- Strategic recruitment
We have drawn up a hiring plan that appropriately addresses the needs of our business divisions and clarifies our targets. In particular, in the recruitment of new graduates, we are strengthening cooperation with universities and specialized institutions, and through internship programs in cooperation with departments, we are able to quickly acquire excellent human resources.
- Career development support
We support employees' career development through career training for managers and young employees and through career interviews with managers using career plan sheets. In addition, opportunities such as in house job openings are provided on a regular basis to encourage employees to develop their own careers.
- Skill development support
We have introduced programs to help employees acquire knowledge and skills that are useful for their current and future work, and we support employee skill development.
- Global Human Resources Strategy Committee
Key personnel persons from each business and region gather together to discuss and promote personnel issues and measures that should be given global priority, such as identifying and developing with expertise, in order to realize the right person in the right place beyond the boundaries of the business and region.

（２）Risks related to research and development

【Risk details】
In an operating environment that demands rapid technological innovation, if we are unable to adequately grasp market changes and technological trends and is unable to quickly bring the results of our R&D activities to market, we may be placed at a disadvantage to its competitors, thereby reducing the competitiveness of our products, leading to a decline in sales and a loss of market share. In addition, if R&D activities do not produce the expected results, there is an increased risk that they will seriously affect our entire growth strategies and adversely affect operating results and financial position.

【Main countermeasures】
We have taken the following measures to reduce R&D risks.
- Promote group synergies
We are striving to enhance and speed up R&D activities by pursuing our group synergies. Examples include the research of fundamental technologies on motors in general at the NIDEC Shin Kawasaki Technology Center and the NIDEC Product Technology Research & Development Center, Taiwan, and R&D focusing on the evolution of production technology at the NIDEC Keihanna Technology Center.
- Establish the Technology Strategy Committee
Centered on the Technology Strategy Committee, which serves as our cross divisional link in the R&D function, we monitor the visualization of issues and responses related to the development of new product solutions in line with market, technology, and customer trend and demand forecasts, and manage risks related to R&D at One Nidec.

（３）Risks related to quality of our products

【Risk details】
In recent years, customers have been demanding higher product quality. Failure to provide safe, high quality products may result in property damage or the loss of human life as well as damage to the products themselves. If such problems occur due to our products, they could lead to customer demands for compensation, lawsuits, recalls, or adverse regulatory action. Our operations could be seriously affected by the payment of costs for the collection and repair of defective products, a decline in sales due to a deterioration in the brand image, and financial burdens or the loss of human resources.

【Main countermeasures】
We have taken the following measures to reduce products quality related risks.
- Strengthen quality governance by building a quality assurance system
The Chief Quality Officer (CQO) oversees quality assurance for our entire group, and the Global Quality Management Division serves as the workforce for the CQO. By establishing a quality assurance system that links the quality assurance managers of Business Units and group companies, with the CQO at the top, we are working to strengthen quality governance.
- Promote cross divisional quality activities
The Quality Assurance Department of our entire group holds regular Quality Conferences to share information on the status of quality and examples of good practices and problems to promote continuous and company-wide improvement.
- Establish and operate quality management systems in compliance with international standards
We are working to maintain and improve product quality by building and operating quality management systems based on international standards for each product (ISO9001, IATF16949, etc.).

（４）Risks related to procurement of raw materials or components

【Risk details】
We procure most of the raw materials and parts necessary for the manufacture of products from outside sources. If the supply and demand conditions for these materials deteriorate extremely, it could have a serious impact on production plans and delivery times. Also, there is a possibility that raw materials and parts procurement may be hindered due to governmental policy changes in some countries related to specific raw materials or conditions of use of components, as well as changes in customer procurement policies.

【Main countermeasures】
We are taking the following measures to reduce the risks associated with raw materials and parts procurement.
- Multi source suppliers
We are building a system that does not depend on any particular supplier. This makes it possible to quickly procure parts from other suppliers if the supply of a particular raw materials or part is interrupted. When selecting suppliers, we confirm in advance that consideration is given to the environment, human rights, the working environment, and resource availability.
- Respond to sudden demand fluctuations
We have entered into long term contracts in key raw material markets to mitigate the risk of price volatility and supply shortages. We are also working to respond to sudden changes in demand by optimizing inventory management and appropriately securing the necessary materials.

（５）Risks related to intellectual property

【Risk details】
We protect its technology and other intellectual property based on intellectual property rights such as patents, design rights, trademarks, copyrights, and trade secrets. However, the following risks exist.
- There is a risk that we may infringe the intellectual property rights of a third party and be required to suspend business, pay damages, or pay patent usage fees.
- There is a risk that our business activities may be hindered, and our competitiveness may decline due to infringement of our intellectual property rights by third parties.
- Due to differences in legal systems in each country, there is a risk that existing intellectual property rights may become invalid, and the business may not be sufficiently protected.

【Main countermeasures】
We have taken the following measures to minimize risks related to intellectual property.
- From the initial stage of product development, we conduct comprehensive and ongoing investigations into the intellectual property rights of third parties to eliminate the risk of infringing on the intellectual property rights of third parties. When necessary, we cooperate with external law firms to respond promptly and appropriately.
- To maintain competitiveness by protecting our proprietary technologies, we actively acquire and maintain intellectual property rights related to our core technologies, monitor product operations of other companies, and protect our business activities. In addition, we thoroughly educate employees on information management to prevent leaks of confidential information.
- We strengthen the protection of international business by acquiring, maintaining and managing intellectual property rights appropriately in accordance with the intellectual property rights legal systems of each country.
Through these measures, we aim to minimize risks related to intellectual property and achieve sustainable business growth.

（６）Risks related to information security

【Risk details】
We handle a wide range of confidential and personal information relating to customers, suppliers and employees. Proper handling of the information is essential to ensure a competitive advantage and maintain a relationship of trust with customers. There are information security risks associated with information management, such as cyber attacks, internal impropriety, and human error. We may be legally liable in the event of information leakage, which may result in significant monetary damages and/or fines. The loss of customer and supplier confidence can also lead to lower sales, loss of market share, and a serious impact on our brand image. These situations pose a serious risk to our sustainable growth and management stability.

【Main countermeasures】
We have taken the following measures to minimize risks related to information security.
- Build a company-wide security management system (establishment of a dedicated team for information security, monitoring of activities by the Information Security Committee, and appointment of an Information Security Management Officer and an Information Security Promotion Officer)
- Provide information security education to employees
- Implement vulnerability inspections and corrective measures for VPN (Virtual Private Network) devices that are vulnerable to cyber attacks
- Develop the “Incident Response Manual,” which defines in advance the initial operation and response system assuming cyber-attack damage, communication between organizations, etc., and conduct periodic training.

（７）Risks related to human rights

【Risk details】
In recent years, social responsibility for human rights has been emphasized. In particular, the issues of forced labor, child labor, and discrimination in the labor environment and supply chain have been highlighted. A company's attitude toward these issues has also become an evaluation item for measuring corporate value. Companies that do not fulfill their social responsibility to address human rights issues are poorly evaluated, and if measures to address these issues are insufficient, there are concerns about legal sanctions, damage to brand value, and an impact on sales and market share.

【Main countermeasures】
We recognize the importance of respecting human rights based on international guidelines. In addition to prohibiting forced labor and child labor, eliminating discrimination, and ensuring appropriate working conditions, we use its supply chain to implement initiatives that include business partners and suppliers. Specific activities are as follows.
- Formulate, update, and raise awareness of the “Nidec Group’s Basic Policy on Human Rights”
In 2021, we formulated the “Nidec Group’s Basic Policy on Human Rights” and made it known to all directors, employees, business partners and suppliers to encourage compliance. In 2024, we revised the Basic Policy in light of social conditions and other factors and are constantly reviewing our efforts as a company.
- Implement human rights impact assessments
We conduct human rights impact assessments to identify and assess the impact of our business activities on human rights. In fiscal 2023, self assessment (SAQ) on human rights was conducted at our approximately 300 sites. In fiscal 2024, more than 1,000 suppliers responded to the SAQ, which included questions on human rights. Based on the results of these responses, a detailed evaluation and analysis was carried out with a particular focus on human rights. For suppliers that are deemed to be at high risk based on analysis, individual meetings and surveys are conducted to lead to improvement activities, and educational materials on human rights are developed to promote suppliers’ understanding.
- Develop a system to address human rights
We are committed to improving the workplace environment and raising awareness of human rights through regular monitoring, education, and training programs. In the event of any issues, a system is in place to ensure prompt corrective action and remediation. We discontinue, prevent, and mitigate negative impacts on human rights via daily activities by the Sustainability Promotion Meeting, chaired by the President, and by the Human Rights Subcommittee, which comprises departments in charge of human rights issues. The Human Rights Subcommittee’s actions are supervised by the Sustainability Committee, composed of the member of the Board, to which reports are submitted regularly. In addition, reports to the Sustainability Committee are submitted to the Board of Directors by the Committee’s chair.

（８）Risks related to fluctuations of foreign currency exchange rates

【Risk details】
We operate globally, and most of our sales are made in currencies other than Japanese yen, such as the U.S. dollar, euro, Chinese yuan, and Thai baht. As a result, fluctuations in foreign exchange rates may have a direct impact on our operating results. If the yen appreciates, sales outside Japan will decline on a yen equivalent basis, resulting in pressure on operating profit and net income. Also, when we integrate the performance of our foreign subsidiaries into the consolidated financial statements operations, the impact of exchange rate fluctuations is significant, and currency instability, particularly in emerging markets, is a risk factor. In addition, there are concerns that fluctuations in assets and liabilities denominated in foreign currencies may generate foreign exchange gains and losses and have a negative impact on financial conditions.

【Main countermeasures】
We have taken the following measures to minimize risks related to exchange rates.
- Offset sales and purchase transactions are denominated in foreign currencies and utilize natural hedges.
- Periodically monitor the status of foreign exchange risks and review transaction currencies as necessary.
- Diversify risk by conducting transactions in various currencies in overseas markets and reducing dependence on specific currencies.

（９）Risks related to fluctuations of interest rates

【Risk details】
We hold long term and short term receivables and interest bearing liabilities with fixed and variable interest rates. Changes in these interest rates could have a material impact on funding costs and revenue from investments. A rise in interest rates could increase borrowing costs and have a direct negative impact on operating profit ratio and cash flows.

【Main countermeasures】
We have taken the following measures to minimize risks related to interest rates.
- Utilize derivative products such as interest swaps and interest options to ensure predictable funding costs.
- Monitor interest rates on a regular basis and diversify risks by reviewing the composition of assets and liabilities. Also optimize the ratio of interest sensitive assets and liabilities.
- For long term cash planning, conduct stress tests assuming multiple scenarios to assess resilience to interest rate fluctuations, thereby supporting prompt decision making.
- Pay close attention to economic trends and changes in monetary policy and flexibly review our funding strategy as necessary.

（１０）Risks related to our liquidity of funds

【Risk details】
We rely primarily on borrowings from financial institutions and direct equity financing from financial markets to finance our growth and operations. There is a risk that financial institutions may tighten their lending conditions or restrict their funding opportunities due to fluctuations in financial markets and uncertainties in the economic environment. In particular, if the global economic situation worsens, credit ratings decline and investors become more risk averse, increasing the possibility that the necessary funds cannot be raised under suitable conditions. This situation can result in a shortage of working capital and delays in capital investment, which can have a serious impact on the growth strategy and competitiveness of the business. In addition, there are concerns that an increase in funding costs and a deterioration in cash flow will lead to a deterioration in financial conditions.

【Main countermeasures】
We have taken the following measures to minimize risks related to the liquidity of funds.
- Diversify funding
Consider financing methods such as bank loans and the issuance of bonds to broaden the sources of funding. In particular, develop a long term funding plan and regularly conduct stress tests to mitigate risks to short-term funding needs.
- Efficient management of working capital
By reviewing our inventory management and accounts receivable collection processes, we stabilize our cash flow and create a system that can respond quickly to sudden demands for funds.
- Maintain and improve credit ratings
Promote management that emphasizes financial soundness and conduct highly transparent financial reporting.
- Global cash management system:
Aim to efficiently allocate funds by consolidating surplus funds in each region.

（１１）Risks related to recoverability of deferred tax assets

【Risk details】
We must assess on an ongoing basis whether deferred tax assets are recoverable from future taxable profit. Changes in economic conditions, deterioration in business performance, or the introduction of new regulations may significantly affect the recoverability of deferred tax assets. As a result, there is a risk that we may determine that some or all its deferred tax assets are unrecoverable, which could result in a decrease in income. In paticular, there are concerns that intensifying competition and market fluctuations could exert a material impact on our financial soundness.

【Main countermeasures】
We have taken the following measures to minimize risks related to deferred tax assets uncertainty.
- Conduct periodic reviews of the recoverability of deferred tax assets and develop a framework for reviewing provisions in response to performance and market trends.
- In formulating tax strategy, we analyze the future taxable income prospects in detail and visualize risks through scenario planning.
- In cooperation with specialized tax advisors, strengthen information gathering based on the latest tax reforms and industry trends, and build a system to support prompt decision making.

３．Governance risks

（１）Risks related to management succession

【Risk details】
Our continued success have depended mainly on the abilities and skills of Mr. Shigenobu Nagamori, our founder. In the current situation where various economic and political risks have become apparent, there is a possibility that we will be unable to produce a new leader to drive growth under our founding spirit, “Do it now; do it without hesitation; do it until completed.” This may have a negative impact on our businesses, operating results and financial position.

【Main countermeasures】
To break away from our dependence on our founder and strengthen our group management system, we are promoting the visibility of key positions throughout our group and focusing on the “discovery, development, and motivation” of candidates for management positions. Specific initiatives are as follows.
- Discovery
Senior management discusses the appropriateness of the succession plan and strives for stable and continuous organizational management. Furthermore, in November 2022, we established a Nomination Committee for some of the most important posts, including the post of President, to establish a system that leads to the appointment of management (the Members of the Board of Directors and executive officers). In addition, to identify the next generation of management candidates, the Global Human Resources Strategy Committee is working to identify human resources that should be developed across regions and businesses, using the succession plan as a reference.
- Development
While human resources development within each business unit is fundamental, we are also providing further development measures, especially for human resources that should be developed across regions and businesses.
(Example) Tough assignments such as corporate reconstruction and promotion
A training school run by the founder for the purpose of instilling our philosophy and management mindset
Global Management College aimed at acquiring high level management knowledge as the leader of a global company
*Since the establishment of the Global Human Resources Strategy Committee, the Global Management College has been reviewing its initiatives for further improvement.
- Motivation
To strengthen our group management system, it is important not only to identify and develop executives and executive candidates, but also to motivate them.
In addition to providing the development measures mentioned above, we are also working to motivate and establish employees through periodic reviews of various remuneration systems.
In addition, on April 1, 2025, we revised our executive system and strengthened the Chief Officer System. By building a new global headquarters system centered on the CxO and transforming from a management system based on the strong leadership of the founder to a structured organizational system, we will create a management system in which the leaders of each business unit and the leaders of each function (CxO) cooperate to promote speedy and bold reforms to resolve various business issues in the future.

（２）Risks related to internal controls

【Risk details】
(Material weakness in prior years)
The Company group has been maintaining and operating an internal control system in order to achieve the purpose of ensuring the compliance and appropriateness of financial reporting. However, it became clear that, at a consolidated subsidiary of the Company, the wrong data was identified for part of the consolidated adjustment in the accounts for the previous fiscal years, such as sales accompanied by transactions between consolidated subsidiaries of the Company group in its consolidated account closing process, resulting in sales recorded in an inflated manner. Accordingly, the Company determined that this error constitutes a material weakness regarding the internal control over its account closing and reporting process for the fiscal years ended March 31, 2023 and 2024.The Company sufficiently understands the importance of internal control over financial reporting. Therefore, to correct the material weakness regarding the internal control over financial reporting as of the end of the previous consolidated fiscal year, the Company has implemented the following recurrence prevention measures and checked the progress of subsequent improvements of internal control:
- Thoroughly review consolidated closing entries included in documents disclosed in past fiscal years and in corrected consolidated financial statements to identify other related issues and to improve the accounting process and representation.
- Update the Company’s policy on its consolidated account closing process, enhance the system to understand the proper and comprehensive information when identifying adjustment-requiring cases that are related to transactions between consolidated subsidiaries, and hold lectures focused on the verification of consolidated book closing and on the approval process by those with approval authority.
- Enhance the comprehensive monitoring function of the Company’s and its subsidiaries’ accounting and financial managers over the consolidated account closing process, and enhance the reviewing and approval procedures on the coordination of transactions between consolidated subsidiaries in account closing and reporting process.
As a result, the Company decided that the material weakness as of the end of the previous consolidated fiscal year has been resolved in the current consolidated fiscal year and the results of such evaluation of the internal control are valid.
The Company will continue to take measures to prevent the recurrence of such issues and strive to enhance internal controls. However, due to inherent limitations in internal controls, the reliability of financial reporting by the Company group could be affected if the above measures do not effectively function in the future.
(Material weakness in the current fiscal year)
Moreover, at another consolidated subsidiary of the Company, it became clear that the amount of unpaid tariffs was underreported due to erroneous declarations of country of origin of motors manufactured. Accordingly, the Company determined that this error constitutes a material weakness regarding the company-wide internal control and internal control over its account closing process for the fiscal year ended March 31, 2025.
The Company sufficiently understands the importance of internal control over financial reporting. To correct the material weakness, the Company group has promptly designed the following recurrence prevention measures. However, the reliability of financial reporting by the Company group could be affected if any material weakness occurs again in the future.

【Main countermeasures】
The Company will strive for management that emphasizes compliance, and further endeavor to avoid and minimize the above risks by positioning maintenance and operation of internal control over financial reporting as one of its essential management issues and addressing inspections, improvements or other issues of management structures and other matters of the affiliated companies at the Company group level.
To correct the identified material weakness regarding the company-wide internal control and internal control over its account closing and financial reporting process for the fiscal year ended March 31, 2025, the Company has designed the following measures:
The following recurrence prevention measures could be changed based on the results of the investigation by the third-party committee and other internal investigations and other.

(1) Foster a mindset and corporate culture that prioritize compliance above all else
- Deliver clear messages from the Company’s board of directors to the Company group
- Thoroughly communicate the necessity of prioritizing compliance above all else through disciplinary actions
- Strengthen the power and authority and enhance the capabilities of the legal and compliance departments
(2) Strengthen organization and structure
- Strengthen the trade compliance structure
- Strengthen the global governance structure
(3) Improve procedures, regulations, and mechanisms
- Improve the Company group’s reporting lines
- Information sharing among the Company group’s legal and compliance departments
- Properly organize the internal control system
(4) Disciplinary actions
- Implement appropriate disciplinary actions

（３）Risks related to fair and accurate financial statements

【Risk details】
The Company recognized the suspicion of inappropriate accounting treatment, that may have a significant impact on the entire consolidated financial statements, with the involvement or knowledge of its or their management—namely, for example, that those companies could be construed to have arbitrarily considered when to write down certain assets with risk in terms of their asset value. Therefore, the Company recognized the need for objective investigations by a third-party committee independent of the Company. Accordingly, the Company decided to establish a third-party committee in compliance with the “Guidelines for Third-Party Committees in Cases of Corporate Misconduct” established by the Japan Federation of Bar Associations on September 3, 2025.
In addition, Company has conducted internal investigations to the various issues concerning trade transactions and customs.
The investigations by the Third-Party Committee and other internal investigations are ongoing, and if any misstatements are identified as a result of the investigations, they could have a material and pervasive impact on the consolidated financial statements.
Details of investigations by Third-Party Committees and other internal investigations are described in the Notes to Consolidated Financial Statements “Investigations by Third-Party Committees and Other Internal Investigations”.

【Main countermeasures】
The Company will fully cooperate in the third-party committee’s investigations and investigations conducted by external experts as part of other internal investigations. The investigations by the Third-Party Committee and other internal investigations are ongoing. The Company will promptly design and implement recurrence prevention measures upon receiving the investigation report from the third-party committee or other internal investigations. Furthermore, should it be discovered that there exists any material misstatement that requires amendment in the Financial Statements of any previous or current fiscal year, the Company intends to take appropriate measures, including amendments of previous or current securities reports. In such cases, the Company will promptly disclose the details of the corrections and amount of the impacts etc.

４．Contingency risk

（１）Risks related to natural and human disasters

【Risk details】
Natural disasters (earthquakes, typhoons, floods, etc.) and man made disasters (wars, conflicts, terrorism, etc.) can have a serious impact on corporate activities in Japan and overseas where we conduct business. In particular, if a large scale disaster occurs in an area where major manufacturing sites and supply chains are concentrated, product manufacture and supply may stagnate, resulting in delays in delivery to customers and higher production costs. As a result, our brand image and customer confidence may decline, adversely affecting revenue in the long term.

【Main countermeasures】
We have taken the following measures to minimize risks related to natural and man made disasters.
- Risk monitoring
Risk Officers at each of our business sites around the world play a central role in the early detection of factors that could hinder business continuity and the appropriate response.
- Risk diversification
Work to minimize the impact of a disaster by geographically dispersing our production sites and duplicating our supply chain.
- Risk transfer
Purchase non life insurance to reduce the financial impact when damage occurs.
- Business continuity management
Develop a Business Continuity Plan (BCP) and conduct training at domestic and overseas sites to prepare for business interruptions.

（２）Risks related to climate change

【Risk details】
Climate change is a serious threat to our business’s sustainability and competitiveness, particularly in the manufacturing sector. The materialization of the following risk events could have a material adverse effect on our financial condition. Please refer to “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches” for details on risks and measures related to climate change.

【Main countermeasures】
Please refer to Annual Report(The 52nd Business Term) “Ⅱ. Business Overview, 2. Views and Initiatives on Sustainability, (Reference) Major climate change risks, opportunities, and mitigation approaches”.

5．Risks for foreign investors

（１）Japan’s unit share system imposes restrictions in holdings of our common stock that do not constitute whole units

【Risk details】
Our Articles of Incorporation provide that 100 shares of our stock constitute one "unit". The Companies Act of Japan imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than a unit do not have the right to vote. A shareholder who owns shares representing less than one unit will not be able to exercise any rights relating to voting rights, such as the right to participate in a demand for the resignation of a director, the right to participate in a demand for the convocation of a general meeting of shareholders and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares. However, holders of the American Depositary Shares ("ADSs") that represent other than multiples of whole units cannot withdraw the underlying shares representing less than one unit and, therefore, they will be unable to exercise the right to require us to purchase the underlying shares. As a result, holders of ADSs representing shares in lots of less than one unit may not have access to the Japanese markets to sell their shares through the withdrawal mechanism.

（２）Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions

【Risk details】
Our Articles of Incorporation, Regulations of the Board of Directors, Share Trading Regulations and the other related regulations, as well as the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a non Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. Shareholders may have more difficulty in asserting their rights as a shareholder than they would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.

（３）A holder of our ADSs will have fewer rights than a shareholder has and will need to act through the depositary to exercise those rights

【Risk details】
The rights of the shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs as instructed by the ADS holder and will pay to ADS holders the dividends and distributions collected from us. However, as an ADS holder, shareholders will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights in their capacity as ADS holder.

（４）Because of daily price range limitations under Japanese stock exchange rules, shareholders may not be able to sell their shares of our common stock at a particular price on any particular trading day, or at all

【Risk details】
Stock prices on Japanese stock exchanges are determined on a real time basis by the equilibrium between bids and offers. These exchanges are order driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

（５）Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs

【Risk details】
Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

（６）It may not be possible for investors to effect service of process within the United States upon us or our members of the Board of Directors or members of the Audit and Supervisory Board or to enforce against us or these persons judgments obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States

【Risk details】
We are a limited liability, joint stock corporation incorporated under the laws of Japan. Most of our members of the Board of Directors or members of the Audit and Supervisory Board reside in Japan. A substantial portion of our assets and all or substantially all of the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgment obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.