JVCKENWOOD : Q&A session at the earnings results briefing for the fiscal year ended March, 2026

Q: You explained that the U.S. government shutdown started affecting the Communications Systems Business in Safety & Security (S&S) Sector in Q4 of the fiscal year ended March 31, 2026, but I think this issue had already existed last year. As far as I recall, you

initially mentioned that the impact was limited. Please let us know why the impact has grown at this point. Additionally, your earnings forecast for the fiscal year ending March 31, 2027 factors in the risk of the impact lingering in H2. If actual demand itself is strong, couldn't sales potentially grow driven by a rapid rebound from delayed demand in around H2 or Q2?

A: First, regarding your question about whether we could not expect the impact of the U.S. government shutdown, we initially expected the budget bill to be passed without the

shutdown of the Department of Homeland Security (DHS) being prolonged to that extent from around the fall of 2025. The budget bill was finally passed into law in May. Given

past cases, the extent to which a government agency shutdown had been prolonged was unexpected. Regarding rebound demand, it has been reported from local sites that

demand itself from government agencies is robust throughout the year. Nevertheless, many of our customers are local governments, and thus it would take some time for them to actually receive a grant after the upcoming gradual start of application

procedures. We expect sales to recover from Q2 to H2 and reach our target for the full year.

Q: The DHS shutdown ended the other day. At what timing did you expect the shutdown to end when formulating the plan for this fiscal year?

A: We formulated a budget on the assumption that there would be no impact for the full year despite minor impact in Q1.

Q: Regarding the Communications Systems Business, I would like to clarify again the

difference between the impact of the federal government shutdown and the impact of competitive comparison. You originally explained that it would not affect your business as your main customers were not large-scale clients, such as the federal government, but small and medium-sized counties and municipalities, unlike competitor A. What is the background of the impact that has emerged at this stage? On the other hand,

competitor A saw earnings exceed its plans in the January-March period of 2026 and made upward revisions to its full-year forecast, although the DHS shutdown was mentioned at its earnings results briefing this morning. Let us know why the

performance was better at competitor A, which could seemingly be affected more heavily by the federal government shutdown, and whether we need to be concerned about your weak market positioning relative to peers.

A: As you mentioned, the federal government shutdown has not directly affected us

because our sales to the federal government are small relative to overall sales, and many of our customers are local governments. However, local governments depend on grants to purchase many of the systems and products that are necessary in the public safety areas. The impact became major as budget execution itself was postponed, and administrative work for grant applications was delayed due to the longer-than-expected

DHS shutdown. As for competitor A, sales from large-scale long-term contracts probably

account for a large portion of total sales. Due to this, the impact of the shutdown on competitor A was smaller than on us, considering the share relative to total sales.

Q: Please tell us about component supply shortages in the Communications Systems Business by reviewing them in chronological order. First, when did you notice the situation, and when did it start to affect your business? Also, when did you take action,

and when did the effects begin to emerge? In addition, you are certain that a negative of

2.4 billion yen in fiscal 2025 will turn around to a positive in this fiscal year. Is this highly likely?

A: The issue came to light between January and March 2025. At that time, we managed to maintain production as we kept material stock as strategic inventory. However,

component supply stopped from April to June 2026, and we could hardly continue production. Production dropped sharply in Q1, which significantly damaged core

operating income. During this period, we implemented design changes to use alternative components, and after design changes to some products were completed in Q2,

production also recovered. At the same time, we were hoping that the supply of existing components would resume, but the supply hardly became stable due to lot rejection.

Until Q3, production continued to recover while we were implementing design changes to adopt alternative components. Finally, in Q4, production more or less fully recovered. In Q1 of this fiscal year, design updates were completed for all models. Supply of the

relevant components became stable through multiple purchases, and production has now returned to normal. The lost sales opportunities led to a loss of a little over 2.0 billion yen in profit. However, given that demand is robust according to market reports and that we still have customers selecting our products, we expect a recovery in the enterprise market this fiscal year. In terms of the public safety market, despite almost no impact due to our prioritization of design changes for this market, we missed the

timing of sales as DHS budget execution was delayed in Q4 of the fiscal year ended March 31, 2026.

Q: I think you were at first a little too optimistic about the component supply. I think you are somewhat optimistic again about the impact of the U.S. government shutdown. You think the situation will normalize, but do you clearly understand the difference in our understanding?

A: Regarding the component supply shortage issue, we initially expected the component supply to recover while implementing design changes to the products for which we needed to prioritize production and sales. However, it did not go well, resulting in a

longer-than-expected delay. In terms of the impact of the federal government shutdown, we did not expect any impact as we had few transactions with the federal government.

However, the longer-than-expected DHS shutdown led to delayed budget execution at our target state governments and counties, and we could not manage to sell our

products. We were optimistic as you have pointed out, and we intend to take a strict view going forward.

Q: Regarding the impact of cost associated with higher memory prices, you explained at the earnings results briefing for Q3 of fiscal 2025 that the amount spent on purchasing memories was 4.0-5.0 billion yen annually. Considering the market conditions, I think the prices have approximately doubled. Is it fair to think that the cost increase of about

4.0-5.0 billion yen has been factored into the full-year earnings forecast for the fiscal year ending March 31, 2027? In addition, is it fair to think that you have already secured the quantity despite rising memory prices? Furthermore, how did you factor in the risk of declining sales volume due to price hikes resulting from costs being passed on to prices, and the risk of the automotive market experiencing a little negative impact as the

automotive market itself faces challenges in procuring various crude-oil-based materials?

A: We spent a little over 3.0 billion yen to purchase memories in fiscal 2025. Recently, the prices have doubled or slightly more. Basically, we have been negotiating with

automakers, particularly OEM clients, on price hikes since the previous fiscal year, and nearly all the costs that increased this fiscal year have been passed on to prices. In terms of securing the quantity, we launched a project team around the summer of 2025 to address memory issues, frequently communicating with memory makers about the necessary quantity. As you know, many memory makers are overseas manufacturers, they ensured the quantity up until the end of December 2026, which is the end of their fiscal year. That said, we intend to secure the necessary quantity while consistently

following up, as memories have not actually been delivered to us. We assume that the impact of a few dozen-dollar hikes in memory prices is not very significant for

automakers, considering the costs for the components used for the entire vehicle.

Q: Is it fair to say that the risk of a decline in automotive production volume is not reflected much in the full-year earnings forecast, as it is hard to project?

A: There are no likelihood of memory shortages and the impact of that on automobile production, that we know of from various sources.

Q: You mentioned that the S&S Sector will recover in H2. What is the balance between H1 and H2 in terms of sales and core operating income plans for the fiscal year ending

March 31, 2027? I think the forecast factors in sales generated alongside an order

rebound in the Communications Systems Business in North America. Do you think this will be delayed, or how likely do you think this will be achieved?

A: We expect revenue and profit growth overall for the full-year earnings forecast for the

fiscal year ending March 31, 2027, considering a recovery from the significant impact of component supply shortages in the Communications Systems Business. In terms of the DHS shutdown, we expect the impact to linger in Q1 and the situation to gradually

recover in Q2 onward, and thus our H1 forecast is very conservative. We are not

intending to disclose specific figures regarding the the balance between H1 and H2, however, we assume that the portion will be higher in H2. That said, the end of the DHS

shutdown in May was earlier than we expected. We can hopefully achieve sales growth in the first half of H1 ahead of our plan.

Q: My question is about the assumptions for the full-year earnings forecast for the fiscal year ending March 31, 2027. Regarding an increase in fixed costs, you explained that personnel and depreciation expenses would increase, and that there were other factors

behind this besides foreign exchange impact. Could you provide more details about this? Please also let us know what your fixed cost estimate is and how it will be covered by other factors in the New Medium-Term Management Plan VISION 2030.

A: Personnel expenses are a major factor that would increase overall fixed costs.

Specifically, salary is increasing globally including in Japan, and we have factored in the

increase in salary itself. As for depreciation expenses, as the new business begins

operations in the Mobility & Telematics Services (M&T) Sector, specifically the Domestic Dealer-Installed Option Business in the OEM Business, depreciation will start for the

development. Furthermore, while increasing headcount, we continued product

development in the last two to three years in the Communications Systems Business. As the development has been completed, we expect an increase in depreciation related to

introducing a new product lineup. Half of the increase stems from personnel expenses, and the other half from depreciation expenses. In the medium term, we expect fixed

costs to further increase as we continue to work to enhance product lineup while

increasing headcount for the Communications Systems Business, which is a growth-driving business. Meanwhile, for the M&T Sector, as we aim to work on reinforcing

business domains and also restructuring like the Aftermarket Business, we intend not to significantly increase fixed costs for the M&T Sector as a whole.

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