SHINDEN HIGHTEX CORPORATION

Products handled by the Company (Semiconductor Products, Display, System Products, Battery & Power Equipment, etc.) are mainly sold to Japan (Japanese-affiliated) set makers, and economic fluctuations directly affect supply-demand trends in customer markets. There are concerns about a global economic downturn stemming from raw material supply constraints and price increases caused by the situation in the Middle East, which cannot be completely avoided through the Group's measures alone. The Group seeks to minimize the impact by expanding sales channels into high-growth markets and promoting sales of value-added products.

The Group conducts business operations overseas, primarily in Asia, and procures from overseas manufacturers, and its operating results may be affected by terrorism, war, changes in the political, economic, and legal/regulatory environment in various countries, and supply chain disruptions. Although the Group has no direct sales or procurement transactions with the Middle East region, there is a risk that indirect effects could materialize through customers and suppliers. The Group seeks to minimize the impact through diversification and development of new major suppliers.

The Company's mainstay Semiconductor Products are primarily general-purpose products such as memory and memory modules, which have the characteristic that supply-demand conditions fluctuate significantly due to rapid technological innovation, product generation changes, and shifts in demand structure. In periods of market fluctuation, the supply-demand balance and price trends of general-purpose products become unstable, affecting profitability. The Group seeks to minimize the impact through expanded sales of high value-added products such as SoC and ASIC, diversification of product lines into Display, System Products, and others, and appropriate order management.

The proportion of purchases from the top three suppliers as a share of consolidated purchases was high at 57.4% in FY2026 (ending March 2026), and there is a risk of contract termination or changes, loss of business rights, or reduced margin rates due to revisions to major suppliers' agency policies. Operating results may also be affected if the market competitiveness of major suppliers significantly declines. The Group strives to curb excessive concentration through global development of new suppliers and diversification of products handled.

The proportion of the top three group companies as a share of consolidated net sales was 34.6% in FY2026 (ending March 2026), and operating results may be affected by changes in major customers' management strategies, difficulty in passing on price discount requests to procurement prices, changes, postponements, or cancellations of production plans, and shifts to outsourced production. The Group seeks to minimize the impact by maintaining close relationships and continuing long-term stable transactions with major customers, as well as expanding sales channels into high-growth markets and discovering and promoting sales of value-added products.

If human or physical damage occurs due to natural disasters such as earthquakes or typhoons, infectious diseases, accidents, fires, etc., or if normal business activities are disrupted due to power or transportation network disruptions, operating results may be affected. Significant declines in business partners' production and logistics functions, or suspension of business partners' production due to inability to procure other necessary parts, are also anticipated. Although the Company has implemented measures such as strengthening computer system security and building backup systems, complete avoidance is difficult.

The Company has a financial structure in which the accounts receivable collection cycle is longer than the accounts payable payment cycle, making operating cash flow prone to becoming negative during periods of sales growth. In FY2026 (ending March 2026), operating cash flow became significantly negative due to increases in inventories, advance payments, and accounts receivable, and interest-bearing debt increased from ¥5,968 million to ¥11,564 million, with the interest-bearing debt ratio rising from 35.9% to 52.2%. If the fund procurement environment deteriorates or interest rates fluctuate significantly, operating results may be affected.

Some borrowings are subject to financial covenants, and if these covenants are violated, the Company would lose the benefit of the term and be required to repay the borrowings in a lump sum. If such lump-sum repayment occurs, it could disrupt cash flow and hinder sales growth due to insufficient working capital. While the likelihood of occurrence is assessed as "low," the degree of impact is assessed as "high."

The ratio of foreign currency-denominated sales was high at 75.2% in FY2026 (ending March 2026), and since the main settlement currency is the US dollar, sales and profit are structurally susceptible to fluctuations in foreign exchange rates. There is a tendency for accounts receivable (foreign currency-denominated ratio of 84.5%) to exceed accounts payable (74.0%), and while the Company seeks to balance receivables and payables through foreign currency-denominated borrowings, unexpected foreign exchange fluctuations may affect operating results.

While the Company secures inventory necessary to fulfill its supply responsibilities to customers, there are periods when inventory levels rise due to changes in market conditions or procurement terms, and if fluctuations occur in customers' required quantities, disposal or reassessment of asset valuation may become necessary. Semiconductor Products have large supply-demand fluctuations, making inventory risk more likely to materialize. The Company strives for appropriate inventory management, including adjusting order quantities in consideration of customers' order status and product demand trends.