Alps Alpine : Integrated Report 2025(English version)

About this update from Alps Alpine Co., Ltd.

%LPSJLPINE extends your senses INTEGRATED REPORT 2 0 2 5 C O N T E N T S INTEGRATED REPORT 2 0 2 5 SECTION 1 Value Creation Story SECTION 2 Value Creation Activities SECTION 3 Corporate Governance SECTION 5 Data Section 4 CEO Message 8 Corporate Vision / Vision 2035 Alps Alpine's Value Creation Process Alps Alpine's Products and Their Markets Transition of Products and Technologies Intellectual Property Strategy Supporting Alps Alpine's Strengths 15 Management Structure Reform: Outcomes and Challenges 17 Materiality 18 Material Issues and Measures 19 Mid-Term Business Plan 2027 21 Financial Strategy and Capital Policy 23 Dialogue Between the CEO and Outside Directors 28 Sustainability Management Environmental Strategies for Realizing a Sustainable Society Climate Change Adaptation and Mitigation Promoting Resource Circulation Human Resource Strategy to Support Value Creation Organizational Goals and Challenges Enhancing the Human Resource Portfolio Attracting and Developing Value-Creating Human Resources Fostering a Culture That Channels Individual Strengths into Value Creation Respect for Human Rights Improving the Work Environment, and Occupational Health and Safety 39 Corporate Governance 44 Directors and Vice Presidents 46 Compliance 47 Risk Management SECTION 4 Business Activities 49 Component Segment 51 Sensor and Communication Segment 53 Mobility Segment Financial Highlights Non-Financial Highlights Summary of Key Management Indicators 60 ESG Data Corporate Data Stock Information Consolidated Financial Statements 65 Consolidated Balance Sheet 66 Consolidated Statement of Income and Comprehensive Income 67 Consolidated Statement of Changes in Net Assets 69 Consolidated Statement of Cash Flows 70 Notes to Consolidated Financial Statements 97 Independent Auditor's Report 01 SECTION Value Creation Story 4 CEO Message 8 Corporate Vision / Vision 2035 Alps Alpine's Value Creation Process Alps Alpine's Products and Their Markets Transition of Products and Technologies Intellectual Property Strategy Supporting Alps Alpine's Strengths C E O Hideo Izumi Representative Director, ME SSAGE President Driving Transformation Through Dialogue: Building Trust with Stakeholders and Realizing Our Vision Management Structural Reform Driven by Dialogue, and the Challenge of Rebuilding Trust Since taking office as president in 2023, I have strongly believed that sincere dialogue with stakeholders is essential to enhancing our corporate value, and I place particular importance on communication with our employees. With a motto of having "management that demonstrates immediate results," I have visited 14 domestic and 27 overseas locations, holding town hall meetings with employees at all levels. To create a "company that is attractive to employees," I have engaged seriously with over 1,000 questions, opinions, and suggestions gathered from interviews with a total of 2,300 employees and have actively incorporated those that contribute to corporate value into management decisions. Meanwhile, in our dialogue with shareholders and investors, we have received numerous critical comments regarding our failure to meet past mid-term business plans and the volatility of our earnings. We have questioned how the Company is being evaluated, not only in terms of performance but also regarding what must be done to enhance corporate value, and we have instilled the capital market's perspective within management. Under these circumstances, we made a major shift by suspending FY2024 Mid-Term Business Plan, and embarked on a structural reform of our management. Faced with the harsh reality of a net loss due to impairment, we united Companywide to pursue a cost reduction target of ¥32.5 billion as the first step toward restoring stakeholder trust. The cost structure reforms included painful measures such as workforce optimization through site consolidation. Before implementing these actions, I visited each location to explain our intent directly. Contrary to expectations, rather than objections from the front lines, we received suggestions for even stricter measures and more effective alternatives. By incorporating these suggestions into our policies, we achieved total cost savings of ¥30.7 billion. Excluding factors delayed due to customer circumstances, this result exceeded our original target. I believe it was made possible by each employee understanding, accepting, and taking ownership of the reform initiatives. This reaffirmed my belief that sincere dialogue is the driving force behind successful transformation. ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Strengthening the Executive Framework and Reforming the Board of Directors In FY2024, was also a year of fundamental reassessment of our management approach. Our most pressing challenge is to execute bold structural reforms of our management while also achieving long-term enhancement of corporate value. To enable me to focus on executing reforms, our first step was to strengthen the executive structure. We newly established the roles of Chief Operating Officer (COO) and Chief Strategy Officer (CStO). The COO is responsible for operational reforms with immediate impact, such as short-term performance management, optimizing production scale and structure, and reducing fixed costs. The CStO is tasked with medium-term strategies in business restructuring, and medium- to long-term strategies for enhancing corporate value, including M&A, human capital management, and achieving data-driven digital transformation (DX). We then redefined the role of the Board of Directors, shifting it from a forum that simply deliberates on proposals submitted by the executive side to a monitoring board that discusses what actions should be taken to enhance corporate value. As a result, I believe the executive side has begun to internalize a stronger awareness of pursuing corporate value enhancement, not only through performance management but also by incorporating external perspectives. Although we are still in a transitional phase, I firmly believe this marks a significant step forward in our management structure. P.23 Dialogue Between the CEO and Outside Directors Mid-Term Business Plan 2027 - Targeting PBR of Over 1x and ROE of 10% While we achieved certain results through cost structure reform, that process also revealed key management issues that we must address. These are the reduction of volatility in earnings forecasts and the strengthening of profitability through improved capital efficiency. In the three-year Mid-Term Business Plan 2027 launched in FY2025, we have set management targets of achieving a price-to-book ratio (PBR) of 1x by FY2026 and return on equity (ROE) of 10% by FY2027. As noted earlier, our past earnings volatility has, at times, failed to meet the expectations of our shareholders and investors. To regain trust from the capital markets, we recognize the need to consistently achieve our performance targets and maintain transparency in our management initiatives. In 2025, we were compelled to factor in the impact of tariff issues on our results. For our FY2025 earnings forecast, we considered various scenarios under the assumption of a highly uncertain market environment and examined the performance levels we should achieve. As a member of management, I wrestled with the decision to adopt conservative indicators, but I prioritized ensuring the credibility of our commitments to regain trust. To reach our goal of achieving 10% ROE, we believe it is essential not only to implement revenue growth strategies such as improving profitability in the mobility business and establishing our next growth drivers beyond smartphones, but also to drive capital efficiency improvement from a management standpoint. We will continue to lead initiatives such as divesting non-core businesses, exiting low-profitability products, consolidating production sites, and transforming our business portfolio. In addition, we will invest ¥40.0 billion in strategic initiatives to strengthen our domestic manufacturing competitiveness and reinforce cost resilience at our domestic sites. Furthermore, by strategically investing in sensors as our next growth driver, we aim to enhance our domestic profitability. Optimizing capital efficiency is also a critical theme. Until now, we have focused on sales and operating profit from a profit and loss statement (P/L) perspective. However, in the Mid-Term Business Plan 2027, which positions ROE as the most important metric, we are shifting our focus toward managing by business-specific return on invested capital (ROIC) and balance sheet (B/S) discipline. Long-Term Business Evaluation and Investment Decisions As mentioned earlier, we introduced ROIC-based business management in the second half of FY2024. Traditionally, business evaluations and investment decisions have tended to focus on P/L-based payback and single-year profitability. With the introduction of ROIC-based management, we are shifting toward investment criteria based on segment-specific hurdle rates benchmarked against peer performance. This enables us to make business decisions, including investment and withdrawal, by evaluating each segment's capital efficiency and potential for future value creation, ultimately improving capital efficiency and enhancing sustainable corporate value. Material Issues That Define the Company's Direction As part of our efforts to enhance sustainable corporate value, we have devoted significant time to revising our material issues. This revision was guided by a shared understanding within the Board of Directors that material issues should define the direction of the Company, and that management decisions and actions must always align with them. In this revision, we redefined our priorities to place greater emphasis on adaptability to change and human resource development, considering the rapidly evolving business environment. We view human resource development as a particularly vital theme, as it underpins the ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Company's sustainable growth. Additionally, we have reaffirmed corporate governance reform as a key issue, from two perspectives: establishing governance aligned with our actual conditions, and meeting the expectations and demands of society. The revised material issues are aligned with our Mid-Term Business Plan 2027, and we are initially working toward a key milestone three years from now. Naturally, material issues are not temporary goals but require ongoing engagement well into the future. However, we view the next three years as a period for accelerating transformation, and through focused efforts, we aim to build an unshakable foundation for growth. including myself, where we shared our candid views. Participants wanted the project to proceed in a way that everyone could fully embrace, and not just according to a fixed timeline, which caused it to take longer than originally planned. But by remaining patient and refusing to compromise, I believe we ultimately arrived at a message that resonates with everyone. The Vision 2035 we announced in May 2025, "Shaping a Future Where Technology Extends Your Senses," embodies the future we envision and aspire to achieve. It is a vision we can proudly speak of as our desired state 10 years from now. Shaping a Future Where Technology Extends Your Senses Our "Vision 2035" Created Together with Employees Our Company operates across multiple business domains and offers a "Multimodal Sensing" for Excitement, Safety, and the Environment Results from an employee survey conducted shortly after I became president revealed a lack of shared understanding regarding management policy and our Corporate Vision. In town hall meetings across our global offices, many employees remarked they did not feel the Company was moving in a unified direction, not did they understand where the Company was headed. In light of this, I recognized early in my first year as president that we needed to review the Corporate Vision to serve as a compass for all employees, and I made it a top management priority. The Corporate Vision must resonate personally with each individual; without that, it cannot truly fulfill its role. While there are many methodologies for creating a vision, I believe it must reflect the voices from the front lines. That is why we launched our Corporate Vision Project and invited a diverse group of employees from all regions worldwide to participate. They engaged in ongoing dialogue and discussion about why Alps Alpine exists and where it should be headed. At times when the path forward became unclear, employees asked, "What does leadership think? We want to hear from you directly!" This led to repeated exchanges between project members and the executive team, wide range of products, but they share one unifying feature. They are all related to human-machine interface technologies that connect people and things. However, what truly sets us apart is not just the ability to connect people and devices, but our technology that transforms an understanding of human sensibilities into optimized products. In the 77 years since our founding, even as market needs and technologies have evolved through M&A and business integration, our core technologies related to human sensibilities have remained and continued to be refined. Since our corporate integration, we have taken a T-shaped approach by combining software and systems design to create new products and value. Ultimately, this has led us precisely in the direction of "Shaping a Future Where Technology Extends Your Senses." When I recently visited our European offices, many employees shared that this vision truly reflects their future. I believe this is not just a slogan, but a clear compass for redefining our future business strategies and portfolio. In 2035, 10 years from now, we intend to continue creating products that resonate with human sensibilities. Looking toward the next 10 years, we are focusing on "multimodal sensing" as our next pillar of value creation. As generative AI continues to evolve rapidly, multimodal AI that simultaneously utilizes text, images, audio, and other data to enable advanced decision-making and recognition is becoming mainstream. In the next phase of evolution, extracting and processing sensor data tailored to AI engines will be critical. We will leverage our advanced sensing technologies, our proprietary ICs with a track record of three billion units shipped in the past 10 years, along with our mobility assets, including absolute position detection in car navigation, object recognition in around-view systems and dashcams, and audio technology, tailored to each application. We will integrate them into products or package them as System in Package units to create unique multimodal sensing solutions that resonate with human sensibilities. Our multimodal sensing also holds great potential in the robotics field, where we are launching new initiatives, and in addressing social challenges caused by aging and declining birth rates. In humanoid ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section robotics, advanced interfaces that convey and interpret human senses and sensibilities are essential. Our expertise in sensitivity engineering is expected to create new value in caregiving and lifestyle support settings within aging societies. In April 2025, we transitioned our development organization into a cross-functional structure to integrate and advance sensing and elemental technologies. We have also established dedicated development projects for the robotics domain and have launched new robotics initiatives at our bases in China, the United States, and Europe. Going forward, we will place multimodal sensing at the core of value creation and deliver the values of excitement, safety, and environmental sustainability. Proactive IP Strategy and Strategic Investment During my tenure as Chief Technology Officer (CTO), I spent about a year mapping and assessing our intellectual property to understand how our core technologies fare in the global market. Historically, our intellectual property activities were largely defensive, focused on litigation risk mitigation. However, to strengthen our long-term corporate value and profitability as a technology-driven company, I recognized the need to shift to a more proactive intellectual property (IP) strategy. Accordingly, we worked to identify key technology domains and to formulate strategies to reinforce our intellectual property. Under our Mid-Term Business Plan 2027, we plan to make a ¥20.0 billion strategic investment in sensor technologies, our core area of competitive advantage, supported by our IP strategy. This reflects a medium- to longterm perspective focused on the next 10 years, including multimodal sensing. This investment will be promoted as a strategic initiative contributing to our ROE target of 10% by FY2027. P.13 IP Strategy Supporting Alps Alpine's Strengths Advancing Human Capital Management Based on the Philosophy of "Betting On the People" Our Company has long embraced the principle of "betting on the people." This philosophy is about trusting people, empowering them to take on challenges, and generating new opportunities for growth. Times may change, but we are reaffirming this belief as the core of our human capital management. We believe putting this way of thinking into global practice is essential to driving future corporate value. Since our corporate integration, the COVID-19 pandemic and sluggish performance have significantly reduced international exchange opportunities for our young employees in Japan, gradually impacting human resource development. On the other hand, the reduced support from Japan led to a positive development at overseas sites-greater local autonomy and self-reliance. With over 80% of our production activities based overseas, gaining hands-on experience in practice, not just theory, continues to be a vital part of employee growth. Despite the challenging market environment, we are taking a medium- to long-term view on human resource development. Starting this fiscal year, we are creating opportunities for young employees in Japan to gain experience abroad. We are also advancing initiatives to utilize talented overseas personnel beyond their local regions and across global operations. We aim to foster dynamic, globally minded human resource development. Looking at the mid-career level, although not unique to the Company, the "sandwich phenomenon" has become a significant challenge in Japan. Being caught between frontline operations and management has led to a decline in candidates aspiring to managerial roles. To address this issue on a fundamental level, we must foster a corporate culture where mid-level employees feel empowered to voice opinions on management and corporate direction. Let me repeat, my motto is "management that demonstrates immediate results." A culture where we communicate openly without hesitation, where management trusts employees and employees trust management, will raise engagement and foster a culture of bold, proactive action. We will continue advancing human capital management to become a company that is attractive to both employees and all stakeholders. P.33 Human Resource Strategy to Support Value Creation Becoming a Company That Can Achieve Vision 2035 To achieve our management targets of 1x PBR by FY2026 and 10% ROE by FY2027, it goes without saying that the management team, including myself, must lead and implement critical measures to enhance corporate value. However, achieving these goals would not be possible without the strength of our employees. Over the next three years of our new Mid-Term Business Plan, we will continue focusing on strengthening employee engagement. By aligning the organization's direction, we will ensure these efforts lead to tangible results. We will keep delivering innovations that exceed expectations and contribute to building a sustainable society through our technology. August 2025 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Corporate Vision Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Vision 2035 Shaping a future where technology extends your senses We envision a world where people and technology connect seamlessly-intuitively, naturally, and emotionally, creating a warm and inspiring environment. We build a future where our innovations "Beyond Expectations" inspire, touch the senses, and create a sustainable society. The Thinking Behind Vision 2035 Since our founding, we have pursued interface technology, and have engaged in manufacturing that stays close to our customers and local communities. Guided by the idea of continually creating new value that brings joy to both people and the planet, we now aim to build a sustainable society where everyone can live comfortably and naturally alongside advancing technologies such as AI. This is why we focus on the realm of human sensibilities. By leveraging our strength in sensing technology to understand people's thoughts and emotions, and convey them precisely to machines and devices, we will deliver innovation that exceeds expectations. A lways Corporate Philosophy 10 Yea rs Corporate Vision (Vision 2035) 3 Year s Mid-Term Business Plan The Revision Process We wanted employees to view Alps Alpine's future as their own and to take part in shaping it. With that in mind, we launched the Employee Project. Around 40 employees from Japan and abroad took the lead, and over the course of a year, developed the statement and related content by incorporating feedback from global employees and management. April 2024 Employee Project launched Discussed corporate strengths, weaknesses, and value offered → Deepened understanding of the Company July Collected employee input on the future we want to realize Analyzed employee feedback Drafted statement incorporating the Company's history and DNA October Gathered employee feedback on draft statement Analyzed feedback and strengthened coordination with management and overseas working groups → Accelerated toward finalization April 2025 Final statement confirmed Structure Project Owner: President and Representative Director Secretariat Vice Presidents Steering Committee Global Working Group Japan [10 members] Americas/Europe [12 members] Greater China [8 members] ASEAN/India/South Korea [7 members] Exchange of opinions between management and the global working group Positioning of the Corporate Vision As we mark six years after our business integration, we have revised our Corporate Vision to present our desired future for the next 10 years and the direction we should pursue to all stakeholders, including our global employees. While retaining Alps Alpine's enduring Corporate Philosophy, we have positioned the Corporate Vision as a compass, guiding us toward our aspirations for the next 10 years. We are working to create corporate value based on the Mid-Term Business Plan, designed to realize that vision. ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Shaping a future where technology extends your senses Service Robotics Affective Engineering Approximating Humans through AI fusion Mobility Creating a Safe Space Digital Cabin Solution Society AI Caring for People Solving Social Issues Value Excitement, Safety, and the Environment Multimodal Sensing Products Product Value Enhancement Components Sensors Systems Technology Software × IC design Core Technology Assets Electrostatic + Contact + Pressure Five senses Element Technology Sound High Frequency (Radio Waves) Magnetism Actuator ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Alps Alpine's Value Creation Process Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section P.17 Financial Capital A Sound, Well-Balanced Financial Structure Invested Capital *As of the end of FY2024 Value Creation Drivers Key Issues and Initiatives Outcome *As of the end of FY2024 Financial Capital Corporate Vision Recognizing the Business Environment: Opportunities and Risks Cash and deposits: ¥147.9 billion Interest-bearing debt: ¥100.8 billion Shareholders' equity: ¥348.2 billion Total net assets: ¥415.5 billion We aim to enhance profitability and capital efficiency to achieve sustained improvement in corporate value, based on a balanced approach to growth investment, sound financial management, and shareholder returns. Business Component Materiality P.17 Economic value generated through corporate activities ・ Income taxes: ¥ 19.7 billion ・ Market capitalization: ¥ 333.5 billion (as of March 31, 2025) ・ EPS: ¥ 184 / ROE: 9.4 % ・ Total shareholder return: 161.2 % Shaping a Future Where Manufacturing Capital Optimizing our Production System and Strengthening Manufacturing Capabilities Product Value Enhancement Technology Segment Manufactured Capital Technology Extends Capital expenditures: ¥51.8 billion Production sites: 10 locations in Japan 16 locations in nine countries overseas We are optimizing our global production map to build a resilient manufacturing foundation, while pursuing investment efficiency and improving performance through better human resource utilization and labor-saving initiatives. Core Technology Assets P.49 Maintenance of a stable supply chain through the steady supply of high-quality products ・ Serious occupational accidents: 0 cases Your Senses Intellectual Capital Implementing Intellectual Property Strategy That Supports Our Strengths Electrostatic High frequency Software Sensor and Mid-Term Business Plan 2027 P.19 Intellectual Capital Development of unique solutions on the strength of business integration synergies R&D expenses: ¥24.3 billion R&D facilities: 14 locations in Japan 13 locations in eight countries overseas Engineering Headquarters employees: 3,006 *2 Number of registered intellectual property rights held *1 : 7,451 We support Alps Alpine's sustainable growth by promoting IP lifecycle activities linked to management strategy and business portfolio, visualizing core technologies, and driving innovation through data-driven planning using intellectual property data. Contact Pressure Actuation Sound Magnetism IC Design Communication Segment P.51 Environmental Strategies P.30 ・ New releases Product technology-related: 10 releases Alliance-related: 1 release ・ Number of newly secured intellectual property rights *1 : 637 Human Capital Human Capital Maximizing Organizational Performance Based on "Betting On the People" Employees: 27,287 (consolidated) A diverse and self-driven workforce, united by our corporate Mobility Human Resource Strategy Group of employees with diverse values realized through efforts to promote diversity ・ New graduates recruited in FY2024: 207 employees Average cost of investment in human resource development: ¥24,199 *2 philosophy and mutual trust, contributes to the sustainable growth of the Company through proactive engagement. Segment P.53 P.33 ・ Experienced professionals recruited in FY2024: 84 employees Social and Relationship Capital Social and Relationship Capital Contributions to Electronics Industries Across the Globe Intellectual Development of products and technologies that contribute Value Proposition Customers in Japan and overseas: Approx. 2,000 companies Regions of operation: 23 countries (121 business sites) *3 Universities with a cooperation agreement: Natural Capital Decarbonization, Circular Economy, and Coexistence with Nature 3 schools Educational institutions with a joint research agreement: 19 schools Energy use: 480 thousand MWh Water resource use: 1,370 thousand m 3 Drawing from our philosophy of not only providing products but also contributing to electronics industries in countries around the world by taking root in those regions and being of use to them, we are actively promoting communication with customers, employees, universities, and local communities in order to create value by contributing to solving social issues. Strengthening our sustainability management to reduce our environmental impact, we aim to achieve net-zero greenhouse gas emissions across our value chain and a circular economy by FY2050. Value Chain Planning and Marketing Planning and proposals based on understanding a wide range of market needs, from consumer products to automobiles, IT, and industrial equipment, by leveraging our strength as an independent production materials Development and Design We have over 77 years of experience developing electronic components and in-vehicle information devices, as well as in-house designed ICs, algorithms, software, and system integration. Procurement and Production Global supplier coordination, procurement and production systems, in-house design and fabrication of molds and manufacturing equipment, excellent production process design, and quality Logistics and Sales Global supply system through close cooperation with logistics companies and a four-polar sales structure consisting of Europe, North America, ASEAN, and Japan. Property Strategy P.13 Financial Strategy and Capital Policy P.21 to resolving social issues / Prevalence of new technology in society through industry-academia collaboration / Customer and societal recognition of the value of our existence ・ Award-related releases: 3 releases Natural Capital Reduction of environmental impact through the promotion of environmental conservation measures ・ Rate of renewable energy use: 72.2 % ・ Water recycling rate: 3.9 % Change in environmental impact due to the scale of business ・ Greenhouse gas emissions: Up 4.6 % *4 ・ Total waste emissions: ±0 % ・ Water discharge: Down 10.6 % Excitement, Safety, and the Environment Multimodal Sensing *1 Includes registered utility models and designs *2 Non-consolidated employees *3 Excluding management subsidiaries manufacturer. control. *4 Total of Scope 1, Scope 2, and Scope 3 emissions Corporate Philosophy / Management Approach ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Alps Alpine's Products and Their Markets Component Segment Alps Alpine's component products are used in various aspects of our daily lives, such as automotive, home appliances, gaming, and mobile devices. Leveraging our industry-leading product lineup and high quality, which we have cultivated over many years, we aim to maintain and expand our market share while actively entering new markets. Actuators Variable resistors Switches haptic reactors [Other Products] Microfluidic devices Aspherical glass lenses Switches Sensor and Communication Segment Alps Alpine's sensor and communication products, which utilize sensing, control, and communication technologies, provide "safe spaces" in fields such as automotive, consumer electronics, and industrial machinery. Additionally, in our efforts to enter the solutions business, we are working on new services that visualize information obtained from sensors to solve user issues. Communication modules Capacitive sensing Magnetic modules sensors Current [Other Products] sensors • Pressure sensors Remote monitoring system for logistics Analog meter monitoring systems Millimeter-wave sensors Millimeter-wave sensors Mobility Segment Alps Alpine's Mobility Segment has long provided numerous products in the automotive field. We offer products and systems that meet the rapidly changing automotive industry, such as trends in software-defined vehicles (SDVs), contributing to the future of mobility. Power window switches Integrated displays Electronic shifters Amplifiers and speakers [Other Products] Cabin controllers Functional Surface™ Alpine Premium Sound Systems ALPINE STYLE Customized Cars Note: Images are for reference only ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Transition of Products and Technologies Optical Control Technology High-Speed Automated Assembly Technology kup Lens for CD D Pic up Lens for CD D rives High-Precision Molding Technology ommunication Le C ommunication Le ns Front Ligh Front Light (Illuminated Panel) Head-up D i isp l lay Camera Module Camera Module Achromati i c Lens UV-C Lens UV-C Lens Optics Electromagnetic Induction Control Technology pact, Surface-Mou Power Switch Actuator ush-Button Switc Push-Button Switch Power Switch TACT Switch™ Com act, Surface-Mountable TACT Switch™ Composiite Operatiion Device Rotary type tactile device Forcereactor™ haptic commander Actuator for Auto Focus (VCM) Actuator for Auto Focus (SMA/Piezo) Resistive M aterial Technology Motorized Mechatronics Control Technology Mulltii Control Automotiive Brake Pedall Posiitiion Waterproof Detector Detector Swiitch wiith Contacts & Resistors Slide Potentiometer Magnetic Potentiometer for Automotive Use Thermal Potentiometer Surface Friction Control Technology Devices Resistive Pedal Position Sensor Sensor Switch Fault Detection Printing Materials/Pressure Film Technology Control Technology Thiin-Fiillm Heads for Printers Thermal Transfer Printer Miicro Dry™ Priinter (MD Seriies) Compact Thermall Printer Dye Sublliimatiion Photo Printer Decoratiive Priintiing Industriiall Large-Format Printer Mechanical Technology Rotary Switch Potentiiometer Magnetiic Head for Audio (8-track) Magnetiic Head for Audio (recording and playback) Cylliinder Uniit for VTR Surface Friction Control Technology Thin-Film Technology Capacitive Sensing Technology MR Head for HDDs GlliidePoiint™ Magnetic Materials Application Technology Capaciitiive Touch Panel Amorphous Soft Magnetiic Material Automotive Commander Geomagnetiic Sensor AirInput™ Current Sensor Stealth Aerial Interface Stealth Aerial Interface Magnetism Electrostatic Variiablle Condenser High-Frequency/Circuit Design Technology Six-Channel Six-Channe TV Tuner UHF Tuner High-Frequency Application Technology High-Density Mounting Technology Keyless Entry System Keyless Entry System Transmitter/Receiver Unit for Cordless Phones EMC Evaluation Center E C Digital Terrestrial Broadcasting Tuner Bat ery-lless Tire Pressure Monitoring System ter Tire Pres Blu etooth® Module Bluetooth® Module Millimeter-Wave Technology Systematization Technology Kick Sensor Logistics Tracker Chiilld-Left-Behiind Prevention Sensor G Communicatio 5G Communication Device Evaluation Kit High Frequency (Radio Waves) Acoustics and Systemization Technology Acoustic Evaluation Technology Acoustic Modeling Technology A Acoustics Car Stereo wiith Radio Compact Diisc Pllayer Car Navigation System Acoustic Laboratory HDD Naviigatiion System Car Entertainment Car Entertainment Acoustic Control Technology Alpine F#1 Status Sound Systems IC Design / Software 1945 1950 1975 2000 2020 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Intellectual Property Strategy Supporting Alps Alpine's Strengths Basic Policy of the Intellectual Property Strategy Visualizing Core Technologies No.1 IP needed by No.1 Business "Shape the Future of Alps Alpine" MISSION VISION Innovate Business and Technology through IP The diagram on the right analyzes Alps Alpine's global inventor network and serves as a motif representing our IP In transforming our business portfolio, it is vital to create new businesses based on growth markets. When these new businesses are built around Alps Alpine's core technologies, it promotes the deepening, accumulation, expansion, and evolution of our in-house technologies. To that end, we actively conduct technology marketing focused on our core technologies to external audiences, expanding opportunities for potential open innovation. In identifying core technologies, we use not only commercially available analysis tools but also our own original methods. Recognizing the importance of IP data science, we actively engage in challenging IP return on investment (ROI) initiatives to support strategic decision-making. activities. Intellectual property should be approached with a medium- to longterm perspective, drawing from past and present information. We believe it is essential to implement IP strategies at all levels to enhance corporate value, transform business and technology portfolios, and strengthen our competitiveness. This enables us to reinforce strong businesses and pursue sustainable growth under agile management decisions. Core Technology Visualization Core Technology Areas Applied Technology Areas (HMI, Software, etc.) Share (%) System Technology Areas © Alps Alpine Intellectual Property Department Global Ranking (Position) Data Driven Planning VUCA World Volatility Uncertainty Complexity Ambiguity Market Data (Sales & Marketing Divisions) Technical Data (Engineering & Development Divisions) Economic Data (Planning Division) IP Analysis (IP Division) IP Lifecycle Activities Aligned with Business Strategy and Portfolio Growth Strategy and Data-Driven Planning Product Lifecycle of Intellectual Property Intellectual Property Activities Commercialization Stage Business Units Development Stage Business Planning Stage We classify the product lifecycle into four business positions: CTB, GTB, MTB, and WTB,* and develop and implement IP strategies in accordance with the IP policies defined for each position. We explore the direction of our businesses and technologies, and promote patenting, alliances, and licensing under a comprehensive IP strategy that includes industrial property rights. At Alps Alpine, we incorporate not only technical, market, and economic data, but also intellectual property data, in a data-driven, multifaceted approach to develop- As a result, IP activity is most intensive during the CTB stage, while in the MTB to WTB stages, we examine the potential for technology repurposing. These efforts that adapt to the various business positions ensure business continuity and growth in rapidly changing markets. Creation Phase: CTB Growth Phase: GTB Maturity Phase: MTB Reuse and Revitalization Waning Phase: WTB ing growth strategies. Through repeated trial and error using data-driven methods and core technology-based marketing, we continuously refine our IP strategy loop, building a stronger Alps Alpine. Development Division Management & Planning Divisions With External Partners (Consultants, Academia) *CTB : Create the Business, GTB : Get the Business, MTB : Maintain the Business, WTB : Watch the Business ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section 02 SECTION Value Creation Activities Management Structure Reform: Outcomes and Challenges 17 Materiality 18 Material Issues and Measures 19 Mid-Term Business Plan 2027 21 Financial Strategy and Capital Policy 23 Dialogue Between the CEO and Outside Directors 28 Sustainability Management Environmental Strategies for Realizing a Sustainable Society Climate Change Adaptation and Mitigation Promoting Resource Circulation Human Resource Strategy to Support Value Creation Organizational Goals and Challenges Enhancing the Human Resource Portfolio Attracting and Developing Value-Creating Human Resources Fostering a Culture That Channels Individual Strengths into Value Creation Respect for Human Rights Improving the Work Environment, and Occupational Health and Safety 15 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Management Structure Reform: Outcomes and Challenges Cancellation of the 2nd Mid-Term Business Plan and Companywide Promotion of Management Structure Reform Alps Alpine launched its 2nd Mid-Term Business Plan in FY2022. However, in the second year, FY2023, events such as an impairment loss on the former Module and System Segment and overall business under-performance occurred. As a result, it was determined that under the existing business structure, achieving not only the performance targets of the 2nd Mid-Term Business Plan but also the financial goals of a PBR of 1x or more and an ROE of 10%-key to enhancing corporate value-would be difficult. The Company therefore decided to cancel the plan. Accordingly, FY2024 was positioned as a period for implementing management structure reform in preparation for the next Mid-Term Business Plan. The Company pursued three key reforms: Business portfolio reform, Cost structure reform, and Strengthening the management structure. FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2035 2nd Mid-Term Business Plan Mid-Term Business Plan 2027 Medium- to Long-Term Vision Suspended In the second year, challenges to achieving targets became evident, and it was determined that the goals were unachievable. Corporate Value Enhancement Goals Achieve PBR over 1x and ROE of 10% Management Structure Reform As a result, progress was made in each area, while challenges to be addressed in the new Mid-Term Business Plan also became clear. Based on these findings, reforms will continue and specific efforts will be undertaken through the Mid-Term Business Plan 2027 to resolve the identified business issues. Operating Income Net Sales Net Income Three Pillars of Management Structure Transformation and Progress Themes Initial Plan (Key Initiatives) Progress in FY2024 Business Portfolio Reform Cost Structure Reform Strengthening the Management Structure Focus on core businesses Cost reduction target of ¥32.5 billion Reorganization of production bases and product lines Productivity improvements Review of management structure Transition to a regional headquarters system Business reform in China Strengthening development in China Strengthening response to the Global South Streamline unprofitable products in the Mobility Segment Agreed with customers to exit/terminate selected businesses by the end of 2026 Shift toward high-value-added products Reorganized the Module and System Segment as the Mobility Segment, focusing on high-value-added products Exit the touch panel business Exited selected businesses as planned Streamline non-core businesses Completed transfer of the power inductor business Completed tender offer for Alps Logistics shares Reduce fixed costs ¥30.7 billion (FY2024 result) Reduce workforce and capital investment Workforce reduction executed as planned Consolidate three production bases for the Module and System Segment globally Scheduled closure of Jengka Plant in Malaysia (June 2025) Ongoing consolidation of the Mobility Segment Ongoing withdrawal from the automotive business at the Ireland Plant Invest in automation and base reorganization Ongoing enhancement of domestic production competitiveness Promote structural reforms Completed transition to new executive structure (CEO/ CStO/COO) Strengthen short-term performance management and effectiveness Reduce domestic headquarters administrative functions China business project established (cross-based organization) Transition to headquarters system in China (1st step) Established new China business role (vice president assigned in April 2025) Optimize workforce under new headquarters system Strengthen collaboration among three development centers Established collaborative framework across three development centers in China Transfer existing businesses to subsidiary in India Launched India R&D Center and established ASEAN and India business role (April 2025) Strengthen supply system to Chinese OEMs Status of Business Portfolio Reform In reforming our business portfolio, we are focusing on two main themes: transitioning to high-value-added products and focusing on core businesses. In the former Module and System Segment, we are pursuing higher value through enhanced development of Digital Cabin products. In the Component Segment and the Sensor and Communication Segment, we are working to reform the profit structure by expanding the sensing-related product business. With regard to core business focus, we have decided to end the airbag-related business earlier than originally planned, by the end of 2026. From FY2025 the Module and System Segment has been reorganized as the Mobility Segment, with a focus on developing high-value-added products. Furthermore, in January 2025, we transferred the power inductor business to Delta Electronics Inc., and we are considering collaboration with Delta and Cyntec Co., Ltd. in the field of power electronics. 16 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Management Structure Reform: Outcomes and Challenges Cost Structure Reform Key Action Points in the Mid-Term Business Plan 2027 During the promotion of management structure reform, key challenges in both business and corporate areas Progress on Cost Reductions Status of Individual Initiatives (figures in parenthesis represent planned annual reductions) Unit: Billions of JPY became apparent, based on market trends and business performance. On the business front, we recognize that achieving profitability in the long-standing Module and System Segment remains insufficient and Planed 32.5 billion JPY Cost reduction target: ¥32.5 billion 95 % Achieved Actual 30.7 0 Development Efficiency Improvements (4.0) Business and Base Consolidation (2.0) Other Cost Reductions (4.5) Workforce Optimization (6.5) Procurement Improvements (3.5) Reduction of Abnormal Costs for New Products (12.0) 2.5 5.0 7.5 10.0 12.5 requires continued improvement. Furthermore, in the Sensor and Communication Segment, which is positioned as a growth driver, expansion has not met expectations, necessitating prompt action. On the corporate side, frequent revisions to earnings forecasts have led to high volatility, undermining market trust. Moreover, given that investment decisions have tended to prioritize short-term performance targets, we recognized the need to shift toward capital-efficient investment based on a medium- to long-term perspective. In response to these issues, under the Mid-Term Business Plan 2027 launched in April 2025, we will focus on four key themes: achieving profitability in the Module and System Segment (now the Mobility Segment), establishing post-smartphone businesses early, improving the accuracy of earnings forecasts, and shifting toward investment management that emphasizes capital efficiency. We will steadily implement specific initiatives for each of these challenges. billion JPY Planed Actual Events Up to FY2024 Business Corporate Profitability not achieved Growth driver Frequent revisions Inadequate investment in the Module and businesses to earnings forecasts management focused System Segment failed to expand Impairment losses on capital efficiency Profitability of the Mobility Early establishment of Reduction of volatility Bolstering profitability Segment post-smartphone in earnings forecasts through improved businesses capital efficiency Challenges Addressed in the Mid-Term Business Plan 2027 Strengthening the Management Structure Regarding the strengthening of the management structure, a new executive team was approved at the June 2024 General Meeting of Shareholders, completing the transition to a structure for driving reforms. As part of a more execution-oriented structure, business performance oversight was delegated to the newly established COO position, while the CEO directly leads structural reforms and assigns execution responsibility to the CStO. Reform progress and execution of initiatives are overseen by the Structural Reform Steering the Committee chaired by the CEO. In response to the rapidly evolving Chinese market and growing economic bloc trends worldwide, a new China business role was established in April 2025, with a vice president assigned. In rapidly growing India, operations began at the India R&D Center in January 2025. In conjunction, a new regional management structure for the ASEAN and India regions, which was not previously organized, was established in April of the same year, enabling support for regional economic growth. 17 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Materiality Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Environmental Awareness External Environment Politics ・ U.S. presidential election, growing protectionism, and tariff fragmentation ・ Rising geopolitical risks (Ukraine-Russia, Middle East) Market ・ Search for practical use of renewable/alternative energy ・ Economic security and cybersecurity-related regulations ・ Evolving neocapitalism and the digital garden city concept ・ Inflation and monetary tightening in the Economy West ・ Slowing growth in China, labor shortages in Japan Macro Environment (PEST* 1 Keywords) Micro Environment Identification Process Industry ・ Advances in automation, AI, and digital transformation (DX) technologies ・ Electrification, intelligence, diversification, and SDV *2 in automobiles ・ Building robust management and SCM *3 networks Competition ・ Creation of new businesses through open innovation ・ Enhancing added value through advanced products and services Technology ・ Spread of generative AI and 6G technologies ・ Growing cybersecurity risks Society ・ Circular economy and society, response to climate change ・ Workstyle reform and wage increases *1 PEST: Politics, Economy, Society, Technology *2 SDV: Software Defined Vehicle *3 SCM: Supply Chain Management Risks and Opportunities Risks Opportunities STEP 1 Organize our business environment, opportunities, and risks based on our Corporate Vision and medium-term management goals. Corporate Planning Office, Sustainability Promotion Office, Governance Promotion Office, Human Resources Department, Business Units Oct-Nov 2024 Interviews on the business environment, risks, and opportunities •External stakeholders (7 institutional investors) •Business Planning Division •Corporate Strategy Office, Sustainability Promotion Office, Governance Promotion Office, Human Resources Department •Vice presidents STEP 2 Determine priority issues by assessing the results of engagement with institutional investors and other stakeholders Management meetings (discussion) Dec 2024 Ongoing interviews on the business environment, risks, and opportunities •External stakeholders (5 institutional investors) Identification of material issues •Identified by the Corporate Strategy Office and Sustainability Promotion Office, finalized at the Vice Presidents' Off-Site Meeting STEP 3 Assign order of precedence for priority issues based on impact on Alps Alpine's business and importance to stakeholders Board of Directors (review and resolution) Jan 2025 Prioritization of material issues •Considered by the Corporate Planning Office and Sustainability Promotion Office, finalized at the Vice Presidents' Off-Site Meeting Review of material issues Reviewed and resolved by the Board of Directors Our material issues were formulated based on: (1) Double materiality and human capital management issues in Europe's CSRD,* (2) Engagement results with institutional investors and other stakeholders, and (3) Governance survey results. * CSRD ： Corporate Sustainability Reporting Directive Climate change adaptation and mitigation* Respect for human rights Strengthening cybersecurity* Adapting to economic change and ensuring sustainable business quality* (ROIC-oriented management, promotion of business transformation scenarios, and creation of added value in products) Developing talent for value creation and fostering a culture that empowers individuals* Promoting resource circulation* Further reforms in corporate governance* Co-creation with strategic partners Improving the work environment and occupational health and safety Addressing geopolitical and economic security risks* Optimizing and strengthening the supply chain* Further improvements in product quality and safety Enhancing chemical substance management to reduce environmental impact* Strengthening compliance and promoting fair management* Materiality Map Global inflation and currency fluctuations Advancing multipolarity and stricter national regulations Investor disengagement due to declining capital efficiency Accelerated restructuring in the automotive industry Loss of trust and rising costs due to quality defects Shortage of software and marketing human resources Loss of trust, sanctions, and fines arising from human rights violations Tightened supply-demand balance for resources and soaring raw material prices Disruption or destabilization of supply chains and transport routes Rising electricity prices and higher costs for complying with environmental regulations Loss of trust due to chemical-related accidents or resulting damage Incidents or compliance violations Information leaks, operational shutdowns, and loss of trust caused by cyberattacks Expansion of business opportunities in emerging and Global South markets Expansion of SDV adoption and changing value of mobility spaces Advances in electrification and autonomous driving Spread of next-generation 5G and 6G mobile communications Social implementation of generative AI Higher engagement leading to increased productivity and acquisition of top human resources Enhanced competitiveness and innovation through promotion of diversity management Stabilization of SCM through strong partnerships Evolution and expansion of environmentally conscious business models Expanded business opportunities through CO 2 emissions reduction Strengthened trust, internal and external recognition, and corporate value through management transparency Very High Importance to Stakeholders High Impact on Alps Alpine's Business Very High *Material issues added or revised from the previous year 18 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Material Issues and Measures Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Mid-Term Business Plan 2027 (FY2025 to 2027) 2nd Mid-Term Business Plan (FY2022 to 2024) Materiality Vice President Responsible Themes and Initiatives KPI FY2027 Targets Former Materiality KIPs / Targets FY2022 Results FY2023 Results FY2024 Results Implementation Status and Measures Business Adapting to changes in the economic environment and ensuring sustainable business quality P.19 Vice President responsible for each business segment Business transformation scenario promotion Create added value for products Business transformation scenario promotion Promote quality in the Mobility Segment and complete transition to the Global Regional Headquarters system Consolidated Business quality improvement and advancement (Not disclosed)* 1 (Not disclosed) (Not disclosed) * 1 (Not disclosed) * 1 (Not disclosed) * 1 (Not disclosed) * 1 Enhance product value through strategic investment in production competitiveness, sensors, software, etc. Profit impact: ¥20.0 billion Consolidated Co-creation with strategic partners Vice President responsible for each business segment Promote business creation through strategic customers/partners, academia-government-industry collaboration, and joint development (Not disclosed) (Not disclosed) Consolidated Co-creation with strategic partners (Not disclosed)* 2 (Not disclosed) (Not disclosed) * 2 (Not disclosed) * 2 (Not disclosed) * 2 (Not disclosed) * 2 E Climate change adaptation and mitigation P.31 Head of Production, Head of Technology Reduce GHG emissions Scope 1 and 2 GHG emissions Down 70% compared with FY2021 Consolidated Contribution to decarbonization Energy use (crude oil equivalent): 2% reduction per year Consolidated (23%) 472,535MWh 1.3% 477,641MWh 0.6% 480,285MWh Although energy-saving initiatives were carried out at each site, such as replacing equipment with more efficient systems, energy consumption increased slightly due to higher production volume. The renewable energy use rate exceeded the 60% target, driven by efforts such as installing solar power generation facilities. Scope 3 GHG emissions Down 25% by FY2030 Consolidated Renewable energy use rate 85% Consolidated Renewable energy use rate: 60% Consolidated 40.4% 63.6% 72.2% Expand eco-friendly products Percentage of eco-friendly products among new products To be decided during FY2025 Consolidated Promoting resource circulation P.32 Head of Technology, Head of Production Contribution to circular economy Total waste emissions: 2% reduction per year Consolidated 13% 25,758t (2.1%) 25,219t 0.0% 25,215t While waste reduction activities were implemented at each site, there was no significant change due to increased production and other factors. Going forward, we will also work on waste recycling. Water consumption decreased due to progress in reduction efforts at overseas sites. Resource recycling Waste recycling rate 97% (ratio of waste not sent to landfill) Consolidated Water use (water withdrawal): 1.5% reduction per year Consolidated (8%) 1,674,484m 3 (11.0%) 1,489,792m 3 (8%) 1,370,016m 3 Enhancing chemical substance management to reduce environmental impact Head of Quality, Head of Human Resources and General Affairs Strengthen control of chemical substances in products Number of serious incidents involving regulated substances in products 0 cases Consolidated Strengthen governance of workplace-related chemical substances Number of serious incidents caused by chemical substances at business sites 0 cases Consolidated S Developing human resources for value creation and fostering a culture that empowers individuals P.35,36 Head of Human Resources and General Affairs Promote the Corporate Vision and instill Alps Alpine's values Employee Engagement Survey score Increase compared with previous year Non-consolidated Nurturing of human resources and promotion of job satisfaction Fulfillment rate of recruitment plan: 100% Non-consolidated 85% 93% 116% With the easing of COVID-19 impacts, initiatives such as business conceptualization skills were actively implemented, resulting in a 19% increase in investment in human resource development over the three years of the 2nd Mid-Term Business Plan. Survey tools were selected and detailed processes established, and from FY2024 engagement surveys were conducted for all domestic employees. Investment in human resource development: Increase year on year Non-consolidated 34.6% increase ¥20,302 13.9% increase ¥23,124 4.7% increase ¥24,199 Implement effective approaches to individual empowerment and employee engagement Establishment of employee engagement indicators and measurement methodologies Non-consolidated (Not disclosed) Determine details of survey tool selection, process, etc. Clarified definition of engagement and reselected measurement tool Human resource development expenses Increase compared with previous year Non-consolidated Diversity and inclusion Percentage of newly hired women graduates (career-track): 15% Non-consolidated 9.0% 15.0% 10.8% Although the targets for hiring new women graduates and appointing women to managerial positions were not met, the ratios did improve. Various initiatives related to diversity and inclusion were proactively implemented, contributing significantly to internal awareness and integration. Utilize global human resources Ratio of women in management positions: 6.0% Non-consolidated 3.1% 3.5% 4.0% Rate of employees with disabilities: 2.6% Non-consolidated 2.5% 2.6% 2.7% Percentage of men taking paternity leave: 45% Non-consolidated 37.0% 53.7% 66.2% Improving the work environment and occupational health and safety P.37 Head of Human Resources and General Affairs Create a safe work environment Number of serious occupational accidents 0 cases Consolidated Workplace environment, safety, and hygiene Number of serious occupational accidents: 0 Consolidated 0 cases 0 cases 0 cases No fatal or serious occupational accidents resulting in permanent disability occurred during the three years of the 2nd Mid-Term Business Plan. We will continue to strengthen risk assessments and other efforts aimed at preventing accidents. Promote physical and mental health Workplace improvement implementation rate for high-stress environments 100% Non-consolidated Ensure health, safety, and proper working conditions in the supply chain Number of suppliers rated C in CSR assessments 0 cases ー Sustainable procurement Supplier CSR assessment response rate: 100%; Rank B and below: 0% Global 93% 6% 100% 1% 90.1% 0% We conduct annual CSR assessments based on the Responsible Business Conduct Guidelines for suppliers. Through corrective actions, the proportion of suppliers rated B decreased from 6% to 0%. Respect for human rights P.37 Head of Human Resources and General Affairs Reduce management risks in the area of social responsibility (identify and mitigate human rights risks within the Company) Number of serious human rights incidents 0 cases Consolidated Respect for human rights Rate of Group bases ranked A in human rights due diligence surveys: 100% Consolidated Rank C: 0% Rank A: 55% Rank A: 67% Although we did not achieve the 100% A-Rank target for human rights due diligence within the Group, the ratio improved through corrective measures. Participation rate for training on the GROUP CODE OF CONDUCT: 90% or more Consolidated 97% 98% 98.0% Eliminate human rights issues in the supply chain (survey on mineral sourcing) Percentage of certified smelters used (CMRT) * 3 94% ー Sustainable procurement CMRT (mineral sourcing surveys) response rate 100% Percentage of smelters certified by RMI: 100% Global 95.6% 88.7% 98.0% 90.0% 92.3% 78.3% In mineral sourcing surveys, the CMRT collection rate and certified smelter usage did not reach the 100% target. We will continue working with suppliers to promote the use of RMI-certified smelters. Further improvement in product quality and safety Head of Quality Conduct basic quality assurance training Participation rate in basic quality assurance training 100% Non-consolidated Product quality and safety Improvement in product and process design Consolidated (Not disclosed) * 2 (Not disclosed) * 2 (Not disclosed) * 2 We have strengthened reviews from a quality perspective in each development process to identify issues and implement countermeasures to prevent them from occurring. In March 2023, an external organization conducted an audit to assess the implementation environment, actual operations, and capabilities of the Companywide product cybersecurity efforts. All relevant global sites were certified as compliant with the ISO/SAE21434 management system standard. Promote functional safety and product cybersecurity Number of safety requirement violations (ISO26262) 0 cases Non-consolidated Conduct and improve CSMS organizational audits Non-consolidated (Not disclosed) * 2 (Not disclosed) * 2 (Not disclosed) * 2 Number of cybersecurity requirement violations under the responsibility of the Company (ISO/SAE21434) 0 cases Non-consolidated G Further reforms in corporate governance P.39 Head of ESG and Legal Enhance the effectiveness of Management Meetings Board of Directors effectiveness evaluation score Improvement compared with previous year Consolidated Strengthen governance of the ALAP Group Development of internal regulations and rule frameworks Development complete Consolidated Optimizing and strengthening the supply chain Head of Procurement Improve speed and robustness of emergency response BCP drills (internal) Conducted at least once per year Consolidated Response to geopolitical risks and reinforcement of supply chain resilience Revision of risk maps Consolidated Annual review conducted Annual review conducted Risk map reviewed In addition to reviewing the risk map, we launched initiatives to address critical risks such as economic security and information security (cyberattacks) by establishing the Economic Security Committee, Information Management Committee, and Data Utilization Committee. Strengthen risk management for production sites and logistics Risk management implementation (internal) Implemented and results communicated Consolidated Establishment of production backup maps (Not disclosed) Formulated a production risk response plan Production risk map formulated (Not disclosed) Addressing geopolitical and economic ー security risks All vice presidents Prevent leaks and strengthen management of key technologies Identification of key technologies to be protected Establishment of management systems for key technologies Relevant technologies identified Technical management model established for relevant technologies Consolidated Consolidated Strengthening compliance and promoting fair management P.46 All vice presidents Enhance compliance education Introduction of tiered compliance training Implementation complete Consolidated Strengthening cybersecurity ー P.47 Head of Corporate Strategy, All vice presidents Establish robust and appropriate information management systems and environments Implementation of secure information management and control systems for customers, products, and internal use System introduced and operations started Consolidated Management of research and information related to alliance companies Various related guidelines developed and implemented Consolidated *1 Withdrawn due to discontinuation of the 2nd Mid-Term Business Plan *2 Not disclosed *3 Conflict Minerals Reporting Template: A template created by RMI to facilitate the reporting of conflict minerals 19 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Mid-Term Business Plan 2027 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Challenges Addressed in the Mid-Term Business Plan 2027 Achieving profitability in the Establishing post-smartphone Module and System Segment business domains Reducing volatility in earnings forecasts Enhancing profitability through improved capital efficiency Companywide Policies Are Formulated by Backcasting from the Vision for 10 Years in the Future Alps Alpine has formulated Vision 2025, "Shaping a Future Where Technology Extends Your Senses," as the Company's future vision, taking into account the various issues identified during its management structure reform process. To realize this vision, the Mid-Term Business Plan 2027, launched in April 2025, consolidates the basic policies the Company will pursue in the following three pillars. Basic Policies and Key Initiatives 1 Pursuit of High Added Value 2 Preparation of the Next Main Business 3 Strengthening the Management Base Pursuing High Added Value Improving profitability in the Mobility Segment is our highest priority. The former Module and System Segment will be fully integrated into the Mobility Segment, and a shift will be made toward high-value-added products, particularly in the Digital Cabin domain. In addition, we will promote a fundamental overhaul of our profit structure, including the withdrawal from unprofitable products as negotiated with customers in FY2024, selection and concentration of our product portfolio, reorganization of production bases, and rigorous investment decisions based on ROIC. Shift to Digital Cabin solutions Integrate organizational structure under the Mobility Segment (formerly the Module and System Segment) Scale back unprofitable products / Narrow product lineup and customer focus Apply decision-making based on ROIC Strengthen investment in sensor area Strengthen marketing (identification of promising markets) Introduction of new products based on core technologies Reinforce domestic operations (enhance cost competitiveness) Human capital investment Software development investment ROIC management Balance sheet management Preparing the Next Core Business We will strengthen both capital and human resource investments, especially in the sensor field, while clearly defining new growth areas and enhancing collaboration with marketing functions and external partners. Through these efforts, we will actively promote the development and expansion of new products based on our core technologies. Business Segment Strategy and Direction Beginning in FY2025, the two divisions making up the Module and System Segment have been integrated into the Mobility Segment to enhance operational efficiency and profitability. Strategies tailored to the characteristics of each of the three segments will continue to be pursued. Further Strengthening of the Management Foundation To improve the long-neglected cost competitiveness of our domestic production bases, we will continue structural reforms including strategic capital investments, functional reorganization, and investment in human capital, thereby building a sustainable management foundation. We will also implement initiatives aimed at improving the accuracy of earnings forecasts and enhancing capital efficiency in our management. Component Core business supporting profitability ▼ Creation of new products Accelerate development of new products using core technologies Improve cost competitiveness through strategic investment in domestic production bases Sensor and Communication Growth drivers ▼ Expansion of business domains Expansion of business domains through the use of in-house core technologies Expansion of product lineup through technical collaboration Mobility (formerly Module and System) Improvement of business quality ▼ Portfolio transformation Phase out unprofitable products and focus on Digital Cabin to increase value Transform portfolio to align with the Software-Defined Vehicle (SDV) era Through these initiatives, we aim to achieve a PBR over 1x in FY2026 and an ROE of 10% in FY2027. 20 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Mid-Term Business Plan 2027 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Creating New Growth Drivers Direction of Product Portfolios in Each Business Segment Since its founding, Alps Alpine has accumulated a diverse range of elemental technologies and has developed original products centered on those strengths. Among these, sensing technology is one of the Company's key strengths, enabling the development of high-value-added products that incorporate proprietary ICs. In recent years, we have focused not only on improving sensing precision but also on combining multiple sensors and functions to meet more advanced needs. As generative AI continues to evolve and integrate into society, the acquisition and processing of sensor data optimized for AI engines, beyond just text, voice, and images, is gaining attention as a new area of focus. In response to these trends, we are leveraging technologies developed in the mobility field, such as absolute positioning in car navigation, object recognition in around-view monitors and drive recorders, and advanced acoustic expertise, to develop integrated solutions tailored to various applications. We are also developing multimodal sensing products using System-in-Package (SiP) technology that combines these capabilities. These advanced products are positioned as new growth drivers for the Company, and will be a major focus in the Mid-Term Business Plan 2027. As we implement the Mid-Term Business Plan 2027, we will clarify the positioning of products within each business segment and allocate strategic investments and development resources with a forward-looking approach. This will enable focused initiatives, including active investment in growth areas, improvement of profitability for existing products, and an orderly phasing out of some existing products. For future growth investments, the Component Segment and the Sensor and Communication Segment will be positioned as stable sources of revenue, and continuous investments will aim to further enhance profitability. In the Mobility Segment, we are making focused investments in the software domain to transform the business portfolio. As for new product areas, we see them as the next-generation pillars expected to launch within the next three years and are prioritizing their successful commercialization. The concept of multimodal sensing products is already being reflected in new offerings across our businesses, and they are beginning to receive strong recognition in the market for their uniqueness. For existing products, we will seek to improve profitability by exploring new applications and collaborating with other businesses. Meanwhile, for products with low growth or profitability, we will implement planned discontinuation to promote Companywide resource optimization. Our Core Technologies and Mobility Assets Integration of Assets Multimodal AI Component Sensor and Communication Mobility (former Module and System) Strategic Investment Growth Investment Passive devices Multifunctional input devices Haptic devices xMR sensor Millimeter-wave sensor Software Multimodal Sensing EV charging cutoff switch New Products (Launch Year) Magnetostrictive torque sensor • Cabin domain controller Positioning unit • Cabin monitoring Digital key High-sensitivity magnetic image sensor Electrostatic pressure and object detection sensor High Profitability, Low Growth Exploration of New Applications Pressure and humidity MEMS sensor • Integrated display Glass lenses • Sound systems Discontinuation (Phase-Out/ Withdrawal Year) Power inductor Communication module Analog keyless entry Airbag-related products Legacy automotive switches IC Design 3 billion units shipped over 10 years Algorithms Functional safety and cybersecurity Proprietary IC design (ASIC/SiP/SoC) Automotive IC packaging and back-end process expertise Multimodal Sensing Products Software Mobility assets Absolute position detection Visual object recognition Acoustic and sound field generation Noise canceling Integration (System-in-Package) ic M Elemental Technologies · Electrostat c · agnetism Core technologies · Contact · Sound · Pressur and high-frequency · Actuators High precision e and high-freq Multifunctional 21 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Financial Strategy and Capital Policy Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section ROE PER While maintaining a balanced approach to growth investment, sound financial management, and shareholder returns, we aim to improve profitability and capital efficiency and achieve the targets set in the Mid-Term Business Plan 2027: A PBR of 1x by FY2026 and an ROE of 10% by FY2027. PBR Practice of ROIC-based management Profitability Continued cost structure reform Improve profitability of domestic production (optimize fixed costs through site consolidation, etc.) Growth Potential Business portfolio transformation Component Segment: Enhance competitiveness of domestic production Sensor and Communication Segment: Shift to high-profit products Mobility Segment: Shift to high-value-added products and reduce unprofitable ones Satoshi Kodaira Representative Director, Executive Vice President Chief Operating Officer and Chief Financial Officer Overview of FY2024 Performance FY2024 was positioned as a year of management structure reform in preparation for the Mid-Term Business Plan 2027, during which time we advanced three key reforms: Business portfolio reform, Cost structure reform, and Strengthening the management structure. In terms of business Streamlining of non-core businesses Equity Shareholder returns Dividend policy of DOE 3% Flexible share buybacks Balance sheet management Basic Policy on Financial Strategy Practice of ROIC-based management Profitability Continued cost structure reform Improve profitability of domestic production (Optimize fixed costs through site consolidation, etc.) performance, both net sales and operating income increased year on year, and due in part to foreign exchange effects, net sales reached an all-time high. From the standpoint of capital efficiency, we proactively streamlined non-core businesses, including the partial sale of shares in Alps Logistics. Concept Behind the Mid-Term Business Plan 2027 In the Mid-Term Business Plan 2027, we established targets of a PBR of 1x by FY2026, and an ROE of 10% by FY2027, from a management perspective that is mindful of capital costs and share price. In previous Mid-Term Business Plans, top priority was placed on indicators such as net sales and operating income. As a result, we invested evenly across all businesses, leading to issues such as the development of new products unrelated to our core technologies, and investments with poor foresight regarding returns and risks. In light of these reflections, from the second half of FY2024, we clarified our initiatives targeting both components of ROE (profitability as the numerator, while equity capital is the denominator) and made a major shift toward a management policy focused on capital profitability. Based on this shift in management policy, we are working together as a unified organization to implement initiatives that enhance corporate value. Alps Alpine's basic approach is to maintain a balance among growth investment, sound financial health, and shareholder returns while improving profitability and capital efficiency to achieve sustainable enhancement of corporate value. From the second half of FY2024, we introduced ROIC as a key indicator for evaluating profitability and capital efficiency. This enables us to allocate management resources more strategically, based on capital profitability and growth potential, accelerating the shift to a business portfolio centered on high-profit products. We will continue the cost structure reforms initiated in FY2024, working to enhance our competitiveness in Japan through initiatives such as labor-saving measures and site consolidation. In parallel, we will enhance capital efficiency by selling non-core businesses and idle assets. From the perspective of optimizing equity capital, we will implement shareholder returns through both dividends in line with our dividend policy and agile share repurchases. By steadily executing these initiatives, we aim to improve profitability and capital efficiency, and to achieve a PBR over 1x and an ROE of 10%. Companywide Management Structure Reform Mid-Term Business Plan 2027 FY2024 (results) FY2025 FY2026 FY2027 Capital Efficiency (ROE) 9.4% 10% Stock Price Indicator (PBR) 1x Over 1x Growth Potential (Net Sales) 990.4 950.0 990.0 1,075.0 Profitability (Operating Income) 34.1 （ 3.4% ） 25.0 （ 2.6% ） 52.5 （ 5.3% ） 71.0 （ 6.6% ） Profitability (Current Net Profit) 37.8 （ 3.8% ） 5.5 （ 0.6% ） 30.0 （ 3.0% ） 45.0 （ 4.2% ） Financial Soundness (Equity Ratio) 55.9% 50% (target) 50% (target) 50% (target) [Unit: Billions of JPY] 22 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Financial Strategy and Capital Policy Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Growth Investment Based on assessments of capital profitability growth potential, we plan to make growth investments totaling ¥245.0 billion, comprising ¥100.0 billion in strategic investments and ¥145.0 billion in capital expenditures. Of the strategic investment, ¥50.0 billion will be allocated to multimodal sensing products that integrate our core and software technologies as a central growth driver. Specifically, we will invest in the sensor domain to Implementing a Financial Strategy Driven by ROIC : Transition to Capital Cost-Aware Management We have shifted from a traditional emphasis on net sales and operating income margin to a new management approach that prioritizes capital profitability, introducing ROIC as a key indicator. Specifically, from the second half of FY2024, we began using the internal rate of return (IRR) and net present value (NPV) as criteria shift the Sensor and Communication Segment portfolio toward high-profit products (such as millimeter-wave sensors, digital keys, and positioning units), and in software development to transform the Mobility Segment portfolio by leveraging our strengths in the Digital Cabin field and moving into high-value-added areas. Additionally, ¥40.0 billion will be invested in enhancing the competitiveness of domestic production. This for investment and order decision-making. Beginning in FY2025, we will use ROIC by business segment to evaluate business performance and build a consistent decision-making process covering Initiatives to Enhance Corporate Value Business Portfolio Strategy and Resource Allocation includes updating aging facilities and labor-saving investments in the Component Segment, as well as fixed-cost optimization through site consolidation in the Mobility Segment. Furthermore, we regard investment in human capital as a key strategy for achieving sustainable growth, and we will actively promote initiatives that support employee development and Unit: Billions of JPY everything from resource allocation to investment, order acceptance, and monitoring. Moving forward, we will utilize these evaluation standards and processes to promote selective and focused business investment through well-prioritized resource allocation, and review our business portfolio accordingly. In doing so, we aim to transform into a leaner, Formulate policies for business selection and focus Allocate management resources with clear prioritization Performance Evaluation and Monitoring Investment Decision-Making engagement. more competitive business structure and achieve sustainable improvement in corporate value. · Establish a lean and competitive business structure · Make investment and order decisions based on capital profitability Initiatives Driven by ROIC-Based Management Growth investment 245.0 Strategic investment 100.0 Multimodal sensing 50.0 Sensor domain 20.0 Software 30.0 Enhance competitiveness of domestic production 40.0 Human capital 10.0 Capital investment 145.0 Sound Financial Management We recognize maintaining a sound financial base as a key management issue to support the sustainable enhancement of corporate value. We aim to maintain an "A" credit rating while balancing safety and efficiency, and have set a target equity ratio of 50%. In terms of financing, we will prioritize the use of interest-bearing debt to reduce capital costs. Shareholder Returns Our dividend policy is based on a dividend on equity (DOE) ratio of 3%. In FY2025, we plan to repurchase ¥20.0 billion worth of our own shares to improve earnings per share (EPS) and capital efficiency, and all repurchased shares will be canceled. Going forward, we will continue to repurchase shares in a flexible and agile manner, taking into account overall capital efficiency and our financial position. Cash Allocation Results from FY2022 to 2024 Through cost structure reforms and other initiatives, we generated a cumulative operating cash flow of ¥170.4 billion. In addition, by streamlining non-core businesses, including the partial sales of Alps Logistics shares and the transfer of the power inductor business, we generated an additional ¥45.6 billion in cash. Plan for FY2025 to 2027 We plan to shift toward management that emphasizes capital costs, and expect to generate ¥230.0 billion in operating cash flow. The cash generated will be allocated to growth investments and shareholder returns. For growth investment, we will proactively allocate resources to investments that drive medium- to long-term growth, strengthening the foundation for future businesses and growth beyond FY2027. For shareholder returns, we will provide dividends based on our dividend policy and conduct agile share repurchases. Through these efforts and more, we will work to enhance corporate value. 23 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section D I S C U S S I O N Dialogue Between the CEO and Outside Directors Yoko Toyoshi Outside Director Hidefumi Date Outside Director Hideo Izumi Representative Director, President and CEO Toward Genuine Enhancement of Corporate Value through Management Structure Reform Based on the outcomes and challenges of our business structure reform, how will we achieve renewed growth through our Mid-Term Business Plan 2027 and regain the trust of stakeholders? In this discussion, President and CEO Izumi, who is responsible for execution, and outside directors Ms. Toyoshi and Mr. Date, who supervise management, exchanged candid views on key factors for enhancing corporate value, including the role of material issues and governance, which are essential for long-term value creation. 24 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section Assessment of Business Structure Reform A Company in Transition, with Speed Remaining a Challenge Toyoshi: The previous Mid-Term Business Plan was suspended in FY2024, prompting a shift to business structure reform. However, so-called "business structure reform" initiatives had been proposed since our FY2019 management integration. That said, I did not consider those to be genuine reforms. I believe that true business structure reform began only after Mr. Izumi assumed the role of president, or over the past one to two years. I commend the decision to initiate reform itself. However, given today's challenging business climate and rapid societal change, both management and on-site execution still lack sufficient speed. For example, a large share of our production is in China. Considering the sluggish sales of automotive products and the operating environment in China, I believe we must accelerate the pace of consolidation. As an outside director, I see it as my role to closely monitor how swiftly these pressing issues are addressed and to offer my input accordingly. Izumi: I had long believed that the Company needed to undergo a fundamental transformation. However, we failed to implement reforms that addressed the core of our business and cost structures, and in hindsight, we did not achieve true transformation. The main reason for this failure was the lack of a shared sense of urgency within the organization. In light of this, we decided to suspend the previous Mid-Term Business Plan and initiate a fundamental business structure reform. I also recognize the lack of speed as a major issue. I believe this, too, stems from an insufficient sense of crisis. That is why I have devoted significant time to fostering a shared sense of urgency through dialogue. Without this mutual understanding among both management and employees, no number of words or documentation will lead to meaningful action. Through leading the cost structure reform, I was reminded that thorough dialogue and achieving understanding and buy-in can significantly accelerate the pace of transformation. Moving forward, I aim to further speed up reform by ensuring that a shared sense of urgency and unified direction are firmly in place. How to Regain Trust Without a Track Record Date: With highly volatile earnings and low profit margins, our Company is a textbook example of a firm trading below a PBR of 1x. To improve our PBR, we need shareholders and investors to believe in our growth story and trust us as a company. Unfortunately, in recent years, we have not built a track record of meeting published targets or consistently growing profits. No matter how logical or sound our strategies and plans may appear, there is always skepticism about our ability to execute. That is why I make a point of reviewing plans from an external stakeholder's perspective as much as possible, and actively offer questions and feedback. Izumi: Having spent many years in business operations, I must admit I did not fully understand the perspectives of shareholders and investors. So, when I was confronted with the reality that our Company lacked credibility in the capital markets, it came as a major shock. But looking back calmly, it was only natural. Our Company has long tended to avoid committing to specific numerical targets, out of a cautious stance to avoid the risk of falling short. However, I realized we must break away from that mindset. Unless we share a clear sense of commitment with employees, we will not generate a shared sense of urgency or speed across the organization. Commitment Still Falls Short Date: Both of you have mentioned urgency and a sense of crisis, but I believe not all vice presidents have truly embraced that commitment yet. People instinctively resist change. They naturally prioritize the comfort of knowing their workplace and job will remain the same tomorrow. I believe this is no different, even for those in executive roles. In recent years, Mr. Izumi has made efforts to expose the Company to external viewpoints, such as those of shareholders and investors, and to convey that stimulus internally to shift mindsets. But I still sense a gap in levels of engagement and urgency among the executive team. Toyoshi: Around 70% of our revenue comes from automotive-related products. Given the current downturn in the automotive industry, our executive officers must take the need for transformation much more seriously. That seriousness will then be conveyed to the front lines, and in turn, speed will naturally increase. In that regard, we revised the executive compensation system in FY2024 to better link remuneration to performance contributions. When officers see that their own contribution and evaluation directly affect their compensation, they will naturally begin to reflect on what they still lack. We hope this will drive faster, more proactive decision-making. Mid-Term Business Plan 2027 Giving Better Cues to Stakeholders Date: The final target of achieving a 10% ROE in FY2027, is an extremely ambitious figure. Even we outside directors were initially surprised, so external stakeholders may be hesitant to trust it. First, 25 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section we must carefully select investments and clearly explain, both internally and externally, the rationale behind the 10% ROE target to gain understanding. Doing so will also help us achieve our goal of surpassing a PBR of 1x by FY2026. During the planning process, I asked management to explain why they believe they can now accomplish what they previously could not over the next three years. I know they spent considerable time preparing those explanations. Coming from a different industry, I am not always able to judge whether a given investment truly makes sense. That judgment was left to Mr. Nakaya and Mr. Fujie, who have expertise in the electronics industry. However, even without technical knowledge, one can still sense "good cues" from a well-explained plan. I believe external investors are the same. That is why I hope management will focus even more on selecting such promising invest- ments and explaining their rationale clearly. Izumi: In the Mid-Term Business Plan 2027, our top priority is revising our investment strategy. Previously, investment decisions were made as an extension of business activities, and investments were kept within depreciation and amortization costs. Now, we have shifted from a single-year investment planning approach to a company-led, ROIC-focused, medium- to long-term investment strategy from a Companywide perspective. While this means business unit-led investments may be deprioritized, I believe this shift is essential for driving transformation at the corporate level. The 10% ROE target is often called ambitious. However, we had already set the same target for FY2027 under the previous Mid-Term Business Plan, and I believe it is our responsibility to carry this target forward. I fully acknowledge that we failed to adequately explain the relationship between investments and returns in the past, resulting in a lack of external understanding. Going forward, we must provide careful, evidence-based explanations and, above all, earn trust through tangible results. A Glimmer of Light at Last Toyoshi: Until now, I had not really felt the significance or benefits of the merger between Alps Electric and Alpine. But earlier this year, we were presented with the concept of multimodal sensing, which integrates the management resources of Alps Alpine. It gave me renewed hope that a new product portfolio may emerge and lead to new value propositions. As Mr. Date mentioned, we lack a solid track record. Furthermore, the automotive market continues to face intense price competition, and this trend is expected to persist. With multimodal sensing, how will our product portfolio evolve, what new customers will emerge, and how will it help solve social issues? What will the company look like in this context, and how will it give meaning to employees working at Alps Alpine? I have seen a glimmer of light, and I hope this message is clearly communicated to employees, shareholders, investors, and all other stakeholders. Izumi: For example, personal computers once came with various types of hardware installed individually. But in the early 2000s, Taiwanese companies began providing motherboard platforms, and almost all hardware components became integrated and consolidated onto the motherboard. As a result, only a few peripheral devices and software remained. At the time, we manufactured a wide range of products, including mice, keyboards, floppy drives, and hard disk drives. However, demand for these quickly declined due to the shift in business models. In response, we chose to create new value by 26 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section focusing on our core technological strengths and combining those with devices and supporting software such as drivers. Although our sales declined, the added value of our products increased significantly. I strongly feel that a similar structural transformation is now underway in the automotive industry. We are working to adapt by transforming both our technology and organizational structure. Over the next one to two years, we will introduce high-value-added products that integrate our core technologies with software. However, if structural change continues to accelerate in the same way it did with PCs, sales of in-vehicle products could decline to some extent in the future. Still, I am confident that as long as we continue creating added value aligned with that change, we will move in a positive direction. Material Issues The Value of Investing in People Toyoshi: For our Company-and any company-people are the most critical issue. How do people act? Do they genuinely want to work here? To be frank, I believe that when we became overly focused on cost-cutting in the past, we lost a portion of our employees' trust and connection with the company. As Mr. Izumi said at the beginning, unless employees truly understand and embrace change, the company will not move forward. It is crucial that everyone shares the same direction. That is why I believe the newly formulated Corporate Vision is highly meaningful. Going forward, we must focus on investing in people and aligning our business with our vision. In the past, we had much more active exchanges with overseas offices, with personnel being sent back and forth to develop on-site talent. That is no longer happening to the same extent. Although we say we are "betting on the people," we have not put it into practice enough. I suspect that is why our employees are not quite feeling it. We are now being tested-are we truly committed to investing in people? Date: This also relates to people. Material issues form the foundation of all business activity. We need to invest more and allocate resources to risk management, corporate governance, and compliance. As things stand, I feel there is a real risk that a problem could arise at any moment. Internal controls are typically structured around the "three lines of defense" concept: the first line is the business execution departments, the second line consists of indirect departments like risk management and compliance, and the third line is the internal audit department. However, in our Company, the Compliance & Audit Department essentially merges the second and third lines. This means there is no independent audit function overseeing compliance, and structurally, we cannot say compliance is properly assured. Toyoshi: The Audit and Supervisory Committee has also raised this issue. I understand that efforts are currently underway to put a proper structure in place. Izumi: I have done extensive research on governance and spoken with many executives at other companies. What I have found is that manufacturing companies, historically, have tended to be structured on the assumption that employees can be trusted-that is, on the premise of human goodness. However, there is a growing gap between the longstanding assumptions in manufacturing and today's societal norms. Based on the insights of our outside directors and my own findings, we are now working to address these gaps. In our revision of material issues, we have elevated the importance of corporate governance and compliance. In this revision, we especially emphasized human capital. We have positioned the development of value-creating talent and the cultivation of a workplace culture where each individual can fully demonstrate their abilities as one of our top priorities. All of this comes back to a key realization: what was once common sense may no longer be so today. We must fully recognize this ourselves. Toyoshi: Mr. Izumi mentioned the idea of the presumption of good faith, but in my view, many Japanese manufacturing companies have used this principle as a justification for cost-cutting, neglecting to invest in areas that truly require funding. I say this based on years of experience auditing companies. I believe we should operate not under the assumption that people are inherently good or inherently bad, but rather on the premise that "people are fallible." Creating an environment where people can work properly is one of the key objectives in establishing internal controls. If we start from the understanding that people are fallible, then providing 27 ALPS ALPINE CO., LTD. INTEGRATED REPORT 2025 Value Creation Story Value Creation Activities Corporate Governance Business Activities Data Section a workplace where everyone can feel secure-regardless of societal or organizational change-is the foundation of compliance, governance enhancement, and internal control. The same holds true for human resource development. I believe this is precisely in line with our founder Katsutaro Kataoka's philosophy of "betting on the people." The Board of Directors and Our Roles A Framework Now in Place Date: One of the major changes in FY2024 was the full visualization of the executive officers' authority and a redefinition of the relationship and role division between the Vice Presidents' Meeting and the Board of Directors. As a result, the Board of Directors now spends little time on monthly earnings reports, and discussion has shifted to the proper focus: the Company's strategic direction. However, even for proposals brought to the Board of Directors after deliberation by the Executive Officers' Meeting, due to the transitional phase we find ourselves in, there were frequent cases where the necessary information was insufficient or the prior deliberation itself wa...

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