YOROZU : Integrated Report 2022

Introduction

Corporate Philosophy

[ Our Purpose ]

Our primary mission is to contribute to society by continually striving to deliver technological innovation and create products that are beneficial to people.

[ Management Stance ]

Our basic business creed is to conduct reliable management.

[ Behavioral Guidelines ]

1. Work is the foundation of life.
2. Trust is the basis of work.
3. Creativity in thought and action is the key to human progress.
4. Safety, quality, and productivity are fundamental to our corporate activities.
5. Risky endeavors are to be avoided while genuine endeavors are to be embraced.

Corporate Vision

With the one and only technologies and developmental capabilities in suspensions, we deliver solutions to customers' needs and aim to become

a 100-year sustainable and evolving company.

CONTENTS

Becoming a Byword for Suspensions

Yorozu has earned the trust of domestic and foreign automakers as a premier supplier of suspensions, having honed its technologies as an auto parts maker with a focus on suspensions.

Leveraging its advanced developmental and technological capabilities,

Yorozu will continue to expand globally as a suspension system

manufacturer with a fully integrated production system, from performance development to mass production, for suspension parts and peripheral components.

Introduction

Introduction

1. Corporate Philosophy and Corporate Vision
2. Message from the President

1. History of Value Creation

1. Yorozu at a Glance

Management Strategy for Sustained Value Creation

10 Value Creation Process

1. Medium-TermBusiness Plan Yorozu Sustainability Plan 2023

1. Message from the CFO

Management Foundation That Supports Sustained Growth

20 R&D Strategy

1. Messages from Company Employees

1. Human Resource Strategy

1. Environmental Management

1. Board of Directors
2. Corporate Governance
   32 Roundtable Discussion between the President and Outside Directors

1. Compliance Initiatives
2. Risk Management

Data Section

1. Five-YearSummary of Financial and Non-Financial Data
2. Corporate Information

Editorial Policy

This is our fourth integrated report since we first published it in 2019. We see this report as a communication tool for promoting a better understanding of our corporate value and growth potential, aiming to convey in an easy-to-understand format our various initiatives to realize a sustainable society, as well as the Group's management policies, business strategies, and financial information, to all of our stakeholders, including shareholders, investors, suppliers, local communities, and employees.

The Yorozu Group will endeavor to provide its stakeholders with better reports to deepen their understanding of the Group. Please visit our official website for the most recent information.

Yorozu Corporation Website https://www.yorozu-corp.co.jp/en/

Period and Scope of Reporting

• Period: Fiscal 2021 (April 1, 2021-March 31, 2022)
  (Some information from outside this period is also included.)
• Scope: Yorozu Corporation and its Group companies.

Guidelines and Entities Referenced

• The International Integrated Reporting Framework of the Inter- national Integrated Reporting Council (IIRC)
• Guidance for Integrated Corporate Disclosure and Company- Investor Dialogues for Collaborative Value Creation

Disclaimer Regarding Forward-Looking Statements

This integrated report contains forward-looking statements, including the Company's current plans, projections, and strategies, based on information available at the time this report was created. Actual performance may differ significantly from these projections due to a variety of factors.

Introduction

Message from the President

Evolving into a Strong, Competitive Company through Transition to ESG Management

Tsutomu

Hiranaka

President and COO

Member of the Board

Aiming to establish a solid presence in the age of electrification on the strength of our long-cultivated Yorozu brand and proprietary technologies

Perception of the Current Situation and Our Vision Going Forward

Our business environment continues to remain uncertain and extremely challenging due to a number of fac- tors. These include the prolonged impact of COVID-19, declining automobile production stemming from semiconductor shortages and logistics disruptions, soaring prices of resin and steel sheets, and a paradigm shift of the automotive industry said to occur once every 100 years-as reflected by CASE-as well as a rapidly growing global momentum toward decarbonization as a measure against global warming. The acceleration of measures in response to CASE and toward decarbonization marks a major turning point where we may see a restructuring of the market and, as a result, we are searching for a way to stay ahead of the fierce compe- tition. In order to benefit from this transition period in the form of new business opportunities, we must strategically step up our pace of evolution, rather than rely on our conventional measures for improvement. While our business environment remains unstable, I hope that we come together as an organization and demonstrate our solid presence in this age of electrification, without succumbing to a defense-first mentality.

Progress of Medium-Term Business Plan

Reflecting on the Inaugural Year of

Yorozu Sustainability Plan 2023

With respect to our business performance in fiscal 2021, we were not able to achieve our first-year targets for sales and operating income ratio due to the impact of the decline in automobile production. That said, despite the stagnant growth in physical volume, we were able to improve our operating income ratio by roughly 5.6 times compared with the previous year by thoroughly implementing a production system that is adjusted flexibly in line with our customers' production volume and by continuing to engage in the Companywide Profit Kaizen Activities to improve profitability. We believe the fact that we were able to turn the substantial net loss incurred in the past two years into profit is a testament to the changes and improvements we have made to our profit structure.

We have been moving forward with our medium-term business plan, Yorozu Sustainability Plan 2023 (YSP2023) (see page 12), since fiscal 2021, a year in which we

Introduction

worked to establish ways to address various issues and an internal framework. Once YSP2023 got underway, the first thing I embarked on was organizational reform to speed up management decision-making and act quickly on decisions made. First, we redefined the objectives of the Board of Directors, the Audit & Supervisory Committee, the internal management meetings, and other meetings; clarified the themes to be discussed; and restructured the meetings to ensure efficiency and effective outcomes. Also, in order to steadily and quickly implement the decisions made at these meetings, we classified our various departments into function groups and our global operations into three regional groups (Japan, the Americas, and Asia), appointed a regional manager for each region, and clarified responsibilities and the delegation of authority. Furthermore, in an effort to address the key issues that may have an impact on management, we established the new Steering Committee, which I chair as the president of Yorozu and consists mainly of officers in charge, to examine and determine solutions to said issues. While it has only been a year since its establishment, the Steering Committee has already produced positive results, such as the announcement of the construction of a new factory in the Tokai region (see page 16) and the foundation for achieving 100% green power generation at all of our domestic sites by 2024 (see page 28). Moving ahead, we look to continue utilizing both top- down and bottom-up approaches and incorporating the views of our employees to be able to explore innovative ideas on resolving our increasingly complex issues and make decisions with speed.

Initiatives for the Second Year and Beyond

To build and pave the way for Yorozu's growth strategy and demonstrate our solid presence in this age of elec- trification, our initiatives for the second year of YSP2023 and beyond are defined as the 5Gs (see page 13).

Our initiatives comprise four specific themes.

First is the advancement of carbon neutrality across all sites in and outside Japan as a measure against climate change, which is the backbone of our ESG management.

In addition to switching to the use of green energy for electricity used at all of our business sites world- wide, we aim to use 100% renewable energy as the heat source for our production lines and achieve carbon neutrality in manufacturing. Climate change is an

Introduction

Message from the President

Introduction

issue that threatens our lives and livelihoods today and tomorrow, and as a human being living on this planet and as a company based in Japan, it is an issue that must be addressed. We believe that our efforts to realize a sustainable, decarbonized society in this time of great transition and competition with the possibility for market restructuring will lead to gaining new business opportunities. In 2021, we formulated Yorozu Global Environmental Vision 2040 (see page 26) and set a goal to become carbon neutral by 2040. Since then, we have been promoting efforts across the organization toward achieving this goal, which include the establishment of the ESG Office in April 2021 and the Carbon Neutrality Office in April 2022. Yorozu will continue to advance its carbon neutrality initiatives with the strong determination and resolve that carbon neutrality will bring about a structural change and with pride as an industry leader in this area.

The second theme is the realization of a model plant at the new site in the Tokai area, which Yorozu sees as a game changer to strengthen competitiveness and generate stable profits.

Through the operation of this new factory, Yorozu aims to not only become exceptionally competitive but also to establish a model plant for automotive parts manufacturers in Japan that consistently delivers new value while thoroughly respecting the environment and being rooted in local communities.

Third is the development of new technologies and methods that contribute to electrification in society, in which we strongly emphasize the importance of protecting the environment, and the fourth theme is our proactive efforts to expand sales.

With the increasing use of electric vehicles (EVs) and the additional parts and systems being installed on vehicles to address the need for automated driving, anti-collision, and other features for added convenience, automobiles will only continue to get heavier. In light of this situation, we at Yorozu are working to develop lighter parts to help reduce CO2 emissions from vehicle use. For example, in fiscal 2021 we introduced stamping and welding technologies that enable the processing of high-tensile thin sheet materials, which offer significant weight-reduction benefits, and will unveil a production method that generates significantly less CO2 emissions throughout the manufacturing process. These measures have increased the likelihood of achieving our goal of reducing weight by 30% or more compared with fiscal 2017 levels and enabled us to make significant contributions to the CO2 reduction efforts of automakers. In addition, Yorozu has developed strategies centered on customers, products, and regions and is actively engaged in activities to expand sales. A number of our suspension parts have been adopted in newly released or soon-to-be released EVs, such as the Ariya by Nissan Motor Co., Ltd., the Sakura and eK X EV, new mini EVs from Nissan Motor Co., Ltd. and Mitsubishi Motors Corporation, the bZ4X by Toyota Motor Corporation, and the Solterra by Subaru Corporation. Through the development of fully

carbon-neutral products and highly competitive products incorporating new technologies and methods at our new factory in the Tokai region, we will devote even more efforts to our sales expansion activities with a view to becoming the preferred choice of Honda Motor Co., Ltd., Toyota Motor Corporation, Daihatsu Motor Co., Ltd., and Suzuki Motor Corporation in the Tokai region.

Promotion of ESG Management

At Yorozu, we believe that the most essential aspects of our corporate management going forward are ensuring stable profits; creating social value through our efforts in ESG management, which involves harmony with the natural environment, employee motivation, and robust governance; and ensuring that all stakeholders are fully aware of our reason for existence. Based on this belief, we consider ESG management to be our most important management policy.

As a measure to increase employee motivation, we are conducting employee engagement reforms (see page 25) in order to establish a workplace where every individual feels fulfillment in working at Yorozu and desires to continue working for the duration of their career. For instance, in terms of empowering women, we not only established the appropriate workplace environments and enhanced our existing systems but also actively conducted awareness-raising seminars and lectures led by external instructors. As a result of these measures, over 10% of our management positions are now held by female employees, and in November 2021 Yorozu became the first company and manufacturer based in Kanagawa Prefecture to receive Platinum Eruboshi certification. Further, our efforts to promote diversity go beyond empowering women. At over 70%, a high number of our male employees take childcare leave, and we also have a relatively high rate of non-Japanese employees.

With respect to strengthening governance, we will continue to strive for sustainable growth and medium- to long-term increases in corporate value by placing emphasis on a high level of governance and constructive dialogues with all investors.

By coexisting with local communities, we will continue to focus more on how we, as an organization, can make contributions to these communities and create social value.

To All Stakeholders

Guided by our Corporate Philosophy-Our primary mission is to contribute to society by continually striving to deliver technological innovation and create products that are beneficial to people-each employee at Yorozu has been working day by day to develop and improve its products as backseat players in the automotive industry by embracing the value, importance, and joy of monozukuri (manufacturing), similar to the way suspensions function in automobiles. The recognition of these efforts by all stakeholders has helped develop the Yorozu brand into a premier supplier of suspensions over the span of 74 years. However, as I stated earlier, Yorozu is currently in a major transition period. On the strength of our collective efforts based on GRIT (guts, resilience, initiative, and tenacity), which represents our frame of mind for the 5Gs, and our supply of exceptional suspension parts that offer cost competitiveness as well as the highest levels of safety, reliability, quality, and comfort, we aim to become a 100-year-old company that will grow continuously and boasts a solid presence in the age of electrification. Along the path to doing so, we will achieve sustainable improvements in our corporate value.

President and COO

Member of the Board

Introduction

History of Value Creation

Founded as Yorozu Automobile Works in April 1948, the Company has developed its business by specializing in suspen- sions, mainly in the area of automotive undercarriage mechanisms. As Yorozu has grown alongside the automotive industry, it has experienced a series of turbulent times over the years, defined by severe changes in its external business environment arising from the Nissan Revival Plan, the global financial crisis of 2008, and the ongoing COVID-19 pandemic. However, despite the twists and turns, the Company has overcome a number of crises by promoting reforms and streamlining measures through the concerted efforts of all employees. Moving ahead, we will continue to enforce strategies that leverage the resilience, strengths, and advantages that have been fostered through this process of overcoming hardships to realize our vision of becoming a 100-year-old company.

The Four Defining Periods of Our Business

Change in Customers

Other 16.5%

Nissan Group 83.5%

Introduction

The Nissan Revival Plan, which called for a 20% reduction in purchasing costs over a three1-year period and the disbanding of affiliated companies, had a major impact on the Company, which was an affiliated manufacturer of Nissan Motor Co. Ltd. However, we addressed this issue through the formulation of the Yorozu Survival Plan, thereby achieving cost reductions of ¥5.8 billion by streamlining production, reducing personnel, introducing the Toyota Production System, and implementing a function-based matrix management system. To overcome the challenges brought on by the disbanding of affiliates, Yorozu formed a capital alliance with Tower Automotive, Inc., an automotive parts manufacturer based in the U.S., thereby becoming a foreign-affiliated company, and expanded its overseas operations to increase orders for automotive parts from Japanese companies other than Nissan Motor.

The global financial crisis triggered by Lehman Brothers' collapse had a severe impact on automakers2and sparked a rapid appreciation of the Japanese yen, cutting our sales by half and putting our business at great risk. However, we took urgent measures to improve profitability, such as closing down a subsidiary in North America, streamlining our production system, and engaging in drastic cost reductions, based on a policy of "achieving maximum efficiency with bare minimum cost." In addition, the Company implemented reforms to reinforce its management structure, including manufacturing and educational reforms, and relocated the R&D functions and related departments to Tochigi Prefecture with the aim of developing globally competitive products. As a result, we successfully posted positive earnings with an operating income of ¥4.8 billion, eclipsing the operating loss of ¥0.7 billion we had initially forecast.

In June 2011, Nissan Motor unveiled its mid-term plan, Nissan Power 88, and in response Yorozu3immediately established six production facilities, mainly in emerging countries, over the course of three years from 2011.

The Company expanded its two existing production sites in both China and Mexico and increased their production capacity to maximize returns on investment. In addition, we launched operations of our second production site in Alabama, U.S. in 2015 and of a second plant at one of our production bases in China in 2019, gaining additional customers in the process, particularly overseas, and increasing the percentage of our sales abroad.

While some production sites faced operational difficulties for a short period due to the global4spread of COVID-19, the situation was dealt by identifying the degree of risk on our product's lead time and reviewing and ensuring proper inventory standards. At Yorozu, we have always encouraged the development of personnel who can multi-task and promoted the standardization and globalization of our business. This has led to the establishment of a system that enables production and delivery processes to be alternatively conducted at other facilities, thereby ensuring the safety of our employees and fulfilling our responsibility of supplying parts.

Topics

Nissan Revival Plan

When Nissan Motor formed an alliance with French automaker Renault, then COO Carlos Ghosn announced the Nissan Revival Plan as its restructuring plan. In addition to plans to develop the business and increase its market presence, the Nissan Revival Plan entailed the achievement of ¥1 trillion in cost reductions by fiscal 2002 on a consolidated basis and a reduction of interest-bearing debt, excluding sales finance, from ¥1.4 trillion to less than ¥700 billion.

Global Financial Crisis of 2008

The bankruptcy of Lehman Brothers Inc. in the U.S. triggered a global economic downturn, leading to a drop in consumption and a rapid depreciation of the U.S. dollar due to financial instability along with a relative appreciation of the Japanese yen. The resulting significant slowdown in the Japanese economy had a massive impact on the country's automotive industry as automakers incurred losses and generated substantially less profits.

Nissan's Active Overseas Expansion Strategy (Nissan Power 88)

In June 2011, Nissan Motor introduced a mid-term plan focused on speeding up growth in global markets, including new markets and segments, in pursuit of a global market share of 8% and operating margin of 8%. As one of the measures of this plan, the company aggressively introduced new models and expanded production capacity in China, the ASEAN region, Brazil, and North America.

COVID-19 Pandemic

The number of people infected with the COVID-19 virus, first confirmed in Wuhan, Hubei Province, China, has exceeded 500 million in total worldwide as of April 2022. Automakers have also been forced to temporarily suspend operations of plants or adjust production due to the unstable supply of parts and the sluggish global demand caused by the pandemic.

Technological Achievements

20002010

20202030