Daiwabo Holdings Co., Ltd.

In the IT infrastructure distribution business, which primarily handles personal computers, the overall market has reached a high level of penetration, raising the risk that future growth may stagnate. Sales profit margins have been on a downward trend due to intensifying competition, and these trends pose a risk that could affect the Group's business performance. As a countermeasure, the Group maintains a system for closely exchanging information with suppliers/procurement sources and sales channels to appropriately grasp market trends, enabling the entire Group to respond swiftly to customer requests.

In the IT infrastructure distribution business, products purchased from manufacturers are in principle non-returnable, and technological innovation proceeds rapidly, leading to rapid obsolescence. If unsold inventory arises, losses may occur from inventory disposal. As an independent multi-vendor, the Group reduces dependency risk on any single manufacturer by procuring from numerous suppliers; however, when there is a global parts shortage or a decrease in supply or defects from major manufacturers, an impact on sales is unavoidable.

The industrial machinery business (machine tools such as vertical lathes, automatic packaging machines, etc.) is highly susceptible to economic fluctuations, with capital expenditure and personal consumption trends having a significant impact on performance. Particularly during economic stagnation, sluggish capital expenditure and personal consumption shrink the total order value across the industry, becoming a factor in the deterioration of the industrial machinery business's performance. Since almost all production is made-to-order, there is a risk that a cooling of demand will directly impact sales and profit.

The IT infrastructure distribution business connects distribution centers, branches, and sales offices nationwide via a network, and the Group recognizes as a particularly important risk the possibility of business suspension due to ransomware damage, and the leakage of confidential information and personal information due to unauthorized external access or computer virus intrusion. Depending on the scale of the damage, this could materially affect the Group's financial position and business results. As countermeasures, the Group has established an "Information Security Policy," implements entry and exit countermeasures, conducts suspicious email training, formulates emergency response plans, and provides education to all employees.

The Group recognizes as a particularly important risk the possibility of misconduct, such as violations of insider trading regulations or fraudulent acts, arising from an insufficient internal control system. If misconduct occurs, in addition to financial losses, reputational risk may arise, potentially having a significant impact on social trust. As countermeasures, the Group continuously conducts compliance training for all Group employees and works to increase its frequency, and strives for early detection and prevention of fraudulent cases through the wider adoption of internal whistleblowing channels.

Although the Group and its partner businesses manufacture in accordance with strict quality control standards, unexpected accidents in capital investment, production processes, or research activities could affect business results. Defects in manufactured products also carry the risk of causing harm to consumers' life, body, or property. As a countermeasure, the Group has established a system for setting up a response headquarters based on a crisis management manual and transitioning to a crisis management structure.

Various changes in the external environment, such as fluctuations in raw material and fuel prices, interest rate trends, deterioration of the economic environment, and natural disasters, may lead to increased costs, loss of sales opportunities, production delays, and extraordinary losses. These risks may also occur in combination, potentially affecting the Group's financial position and business results. As countermeasures, the Group identifies, assesses, and manages risks, and maintains an emergency response system for when a major risk occurs or there are signs of one arising.

The Group's business activities involve matters related to intellectual property rights such as patent rights, and if infringement of rights occurs, whether by other companies or the Group itself, profitability and business viability could be affected. If litigation risk or damages liability risk materializes, this could result in a financial burden and impact business continuity. As a countermeasure, the intellectual property department manages litigation risk, liability risk, and other matters related to intellectual property rights.

Because the Group belongs to an industry subject to significant technological innovation and major market fluctuations, the rollout of new products and services may change the industry structure, causing demand for existing products and services to fluctuate. This poses a risk that the Group's sales and profit may fluctuate as a result. As a countermeasure, the Group maintains a system for closely exchanging information with suppliers/procurement sources and sales channels to appropriately grasp technological innovation and market trends, enabling the entire Group to respond swiftly.

In the IT infrastructure distribution business, direct-delivery transactions from suppliers to customers make the movement of goods difficult to track, and transactions may arise in which the Group's role within the distribution chain is unclear. If improper transactions occur, this could result in financial losses and legal risk. As a countermeasure, the Group confirms the roles of itself and its business partners within the distribution chain, judges the economic rationale of transactions on a case-by-case basis, and establishes and operates appropriate internal controls.