Yashima Denki Co., Ltd.

The Group has entered into a distributor agreement with Hitachi Group companies, which underpins the premise of its business activities. If Hitachi Group companies change their distributor strategy or if the relationship with the Group changes, changes to or termination of the agreement could have a material impact on the Group's financial position and operating results. At present, no factors that would impede continuation of the agreement have arisen.

In the 82nd fiscal year (consolidated), purchases from Hitachi, Ltd. and major Hitachi Group companies totaled ¥32,511 million, accounting for 55.3% of consolidated purchases of ¥58,842 million. If a significant problem occurs with Hitachi Group products, or if the brand image deteriorates significantly, this could reduce the competitiveness of the products handled and affect the Group's financial position and operating results. Although the dependence ratio has declined slightly from the previous fiscal year (57.4%), it remains at a high level.

If the Group is slow to respond to changes in the market environment, economic conditions, or customer needs, this could result in an increase in non-performing assets due to stagnant inventory and lost order opportunities. In addition, as the Group expands its solutions business, such as energy conservation and high-efficiency solutions, its responsibility for quality management expands, and in the event of accidents or complaints, the Group may bear primary responsibility. Furthermore, force majeure events such as natural disasters, infectious diseases, war, and terrorism, as well as the acquisition or loss of personnel, may also affect performance.

The Group sells electrical equipment, industrial equipment, air conditioning-related equipment, and other products to a wide range of industries including steel, chemicals, construction, and public sector, and its performance tends to be affected by trends in domestic capital expenditure. A deterioration in domestic capital expenditure trends or in market conditions in the business fields of major customers could affect the Group's financial position and operating results. The Group also carries an inherent risk of concentration in specific industries.

The Group is subject to a wide range of legal regulations, including the Construction Business Act and export control laws and regulations, and changes to or the introduction of new regulations could constrain business activities. Delays in securing personnel holding technical qualifications required under the Construction Business Act could result in lost order opportunities, and violations of export control laws and regulations could result in criminal or administrative penalties. Delays in response could lead to administrative sanctions such as business suspension orders or license revocation, as well as loss of customer trust.

The Group conducts M&A as part of its growth strategy and records goodwill on its consolidated balance sheet. If the earnings or synergies expected at the time of acquisition are not realized due to changes in the market environment or other factors, the Group may record an impairment loss on goodwill, which could affect its financial position and operating results. Although due diligence and board deliberation are conducted at the time of investment decisions, the risk of changes in the business environment after acquisition remains.

Risk was significantly reduced by the transition of the portion related to active employees to a defined contribution corporate pension plan from the previous consolidated fiscal year; however, the retirement benefit obligation for retirees is calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension assets. If actual results differ from these assumptions, this could affect the Group's financial position and operating results.

The Group holds a large amount of confidential information, including information on business partners and technical information, and has implemented measures such as computer virus countermeasures, network management, entry/exit control systems, internal training, and confidentiality agreements. Nevertheless, if an unforeseen event leads to an information leak, this could affect the Group's financial position and operating results. The increasing sophistication of cyberattacks means the effectiveness of these measures is continually being tested.

As the proportion of construction projects handled by the Group as an engineering company increases, the risk of occupational accidents at construction sites is also increasing. Although the Group conducts safety patrols and implements measures to prevent recurrence, if a serious accident or occupational injury occurs, this could affect operating results and financial position through compensation costs for victims, restoration costs, partial suspension of construction work, and loss of credibility.

The Group has built a virtualized infrastructure server and implemented safety measures for the stable operation of its core systems; however, if a large-scale failure exceeding expectations occurs and recovery takes time, this could cause significant disruption to business operations. A stoppage of core systems would affect operations broadly, including order receipt, sales, and receivables management, and could have an adverse effect on the Group's financial position and operating results.