MACNICA HOLDINGS, INC.

The silicon cycle unique to the semiconductor industry causes price declines and demand stagnation during periods of oversupply, directly affecting business performance. Separately from the cycle, changes in demand and supply capacity for semiconductors handled by the Group, as well as changes in the life cycle of products in which they are incorporated, may also affect business performance and financial condition. The Group continues to share the latest information with customers and suppliers, but complete avoidance of this risk is difficult.

In FY2026 (ending March 2026), the dollar-denominated ratio of domestic purchases was 82.0%, and the dollar-denominated ratio of sales was 43.9%, indicating a high proportion of foreign currency transactions, such that exchange rate fluctuations have a material impact on net sales, cost of sales, and non-operating income and expenses. There is also risk of receivable amount fluctuations due to timing differences in the settlement of purchase discounts with major U.S. suppliers, as well as translation risk associated with converting overseas subsidiaries' assets and liabilities into yen. The Group hedges foreign currency-denominated receivables and payables, but cannot completely eliminate foreign exchange risk.

In the core semiconductor business, suppliers' manufacturing processes and customers' production sites are dispersed across the globe, primarily in Asia, creating the risk that the supply chain could become dysfunctional due to infectious disease pandemics, natural disasters, wars, conflicts, and the like. Since the Group has business locations in 33 countries and regions worldwide, the scope of impact from geopolitical risk is wide. The Group implements various measures to ensure business continuity, but difficulty in continuing business due to unforeseen circumstances may affect business performance and financial condition.

The Group operates in 33 countries and regions worldwide, primarily in Asia, and unpredictable events such as major changes in laws and regulations in various countries, semiconductor export restrictions to China resulting from escalating U.S.-China tensions, boycotts in China, terrorism, war, and disease could have a material impact on business activities. In particular, tightened export restrictions stemming from U.S.-China tensions pose a risk of directly damaging business with China. If such events occur, stagnation in overseas operations or unforeseen damages will affect business performance and financial condition.

As the Group imports and exports cutting-edge electronic components such as semiconductors and integrated circuits and related technologies, it is subject to export-related laws and regulations in various countries, and there is a risk that products handled by the Group could be diverted through indirect exports for military use in countries of concern. The Group takes risk mitigation measures such as scrutinizing end-user classification determinations, destinations, end users, and end uses, and obtaining pledges from customers, but if unexpected uses occur, this could affect business performance. In addition, developments in tariff policies in the U.S. and elsewhere could also affect business performance and financial condition.

The Group maintains close relationships with domestic and overseas suppliers through agency agreements and other arrangements, but changes in business rights due to M&A involving suppliers or revisions to their agency policies could affect business performance. In addition, if a supplier's product development capabilities decline significantly and it can no longer maintain a competitive advantage, this would also affect business performance and financial condition. The semiconductor, IT, and security industries are subject to intense technological innovation, and maintaining suppliers' competitiveness is directly linked to the Group's business foundation.

Through its sales activities, the Group is in a position to access customers' personal information and confidential information, creating a risk of service interruption, information leakage, tampering, or loss due to cyberattacks or human error. The Group has implemented measures such as introducing cutting-edge cybersecurity products, establishing a rapid response organization, and continuing employee training, but if information leakage or similar incidents occur, this could affect business performance and financial condition through customer claims for damages or loss of trust.

The Group maintains several months' worth of inventory to meet customers' delivery requirements, and if there are sudden changes in customer required quantities or a divergence between demand and inventory for discontinued products or maintenance stock, disposal or a review of asset valuation may become necessary. The Group manages inventory through order adjustments that take into account demand forecasts and order status, but responding to sudden changes in market conditions can be difficult. If such circumstances occur, this may affect business performance and financial condition.

Providing solutions based on advanced expertise in semiconductors, security, AI, digital technology, and other fields is key to growth, and competition to acquire excellent engineers is intensifying. The Group promotes various initiatives to maximize human capital, but if it cannot hire sufficient engineers or if excellent engineers leave the Group, this could affect the execution of business plans.

The Group continuously conducts M&A aimed at strengthening existing businesses and expanding globally, as well as investments in new business areas such as AI and healthcare, and manages these through deliberation by the Business Investment Committee, approval by the Management Committee or Board of Directors, and performance monitoring. However, if the value of an investee company or the market value of its shares declines, the Group may lose all or a substantial portion of the invested amount, which would affect business performance and financial condition.