sanwacompany ltd.

Following the change of trade name from "Sanwa Company" to "Miratap" in October 2024, recognition of the former name remains strongly entrenched among existing and prospective customers and business partners, creating a risk that brand awareness may temporarily decline during the period until the new name becomes established. Additional marketing costs for advertising and promotion aimed at establishing the new name may arise, potentially affecting earnings on a temporary basis. The Company is working to improve recognition and strengthen its brand image, but if these measures do not function sufficiently, this may affect its financial position and business results.

Exclusive handling of products imported from Europe is based on local commercial practice rather than written exclusive sales agreements or agency contracts, and therefore lacks legally binding protection. If exclusivity is lost due to unforeseen circumstances, competitors would be able to handle the same products, eroding the Company's differentiation advantage. Since these exclusive products underpin the competitiveness at the core of the Company's main business, the impact on financial position and business results in the event of such loss would be significant.

At the end of the fiscal year under review, the balance of interest-bearing debt stood at ¥3,135 million, with the ratio of interest-bearing debt to total assets reaching 35.7%. Funding is currently raised mainly through short-term borrowings at fixed interest rates, but if funding costs change at the time of refinancing, this may affect the financial position and business results. A similar risk may also arise if negotiations with financial institutions are delayed and financing is disrupted.

Amid the expansion of the internet market, an increase in companies entering EC in the construction industry is expected, and there is a risk that the Company's relative competitiveness may decline if competitors emerge offering superior or imitation products. The Company differentiates itself through exclusively distributed overseas products and its capability for planning and developing original products, but there is also a high risk of imitation of its minimalist design concept, and if intellectual property protection is insufficient, maintaining differentiation may become difficult. If these factors combine, this may have a material impact on the financial position and business results.

As cyberattacks become more sophisticated and diverse, unauthorized access causing malfunction or shutdown of critical systems, or leakage of confidential information, could result in loss of social credibility, disruption or stagnation of business activities, and compensation obligations to business partners and others. In addition, given the nature of the business, which relies primarily on credit card payments as a settlement method, an increase in credit card information leakage or fraudulent use could lead to reduced credibility, contraction of transactions, and damage compensation claims. The Company has implemented information security measures such as network monitoring, but complete protection is difficult to achieve.

The Company holds customers' personal information, and in the event of a serious incident such as a data leak, this could affect business activities, financial position, and business results due to loss of social credibility and damage compensation claims. In addition, tightening of domestic and international regulations related to personal information, such as the GDPR, CCPA, China's Personal Information Protection Law, and cookie regulations, is progressing, creating a risk of disruption to customer acquisition through internet advertising. The Company is working on formulating internal rules and operational manuals as well as strengthening systems and security, but an increase in regulatory compliance costs is also anticipated.

For cost reduction purposes, much of the Company's inventory is consolidated at a small number of specific logistics facilities, where product delivery, inspection, and distribution are handled in an integrated manner. If such facilities are damaged by a large-scale disaster such as an earthquake, inventory and logistics functions could be lost simultaneously, potentially having a serious impact on business continuity. The Company has diversified inventory locations and taken out fire insurance, but it is difficult to completely eliminate the risk of large-scale disasters such as earthquakes.

In actual results for the fiscal year under review, 9.2% of purchasing transactions were denominated in foreign currency, and with the promotion of overseas business, an increase in foreign-currency-denominated sales is also expected going forward, meaning that exchange rate fluctuations may affect the financial position and business results. In a weak yen environment, rising procurement costs would pressure earnings, while effects on overseas sales revenue could also occur in either direction. There is currently no specific description of hedging measures in the securities report, suggesting that measures to address foreign exchange risk appear to be limited.

The Company is actively pursuing M&A as a means of achieving non-continuous growth, and is expanding its group of companies with an emphasis on synergies with existing businesses. However, if the business results of subsidiaries brought into the group fall short of initial expectations due to changes in the business environment or other factors, this may affect the financial position and business results of the Company's group. There is also a risk of impairment of fixed assets; the Company periodically calculates future cash flows and recognizes and measures impairment losses for real estate, showroom interiors, equipment, and fixtures it holds.

The Company's main business is subject to a wide range of laws and regulations, including the Act on Specified Commercial Transactions, the Consumer Contract Act, the Act against Unjustifiable Premiums and Misleading Representations, the Product Liability Act, and the Construction Business Act, and with overseas expansion, it is also subject to local laws, trade-related laws, and industrial property-related laws in each jurisdiction. If a violation of laws or regulations occurs, or if laws are amended or new legislation is enacted, this may affect the financial position and business results. The Company has established a management framework through employee training, development of compliance systems, and the use of retained attorneys, but ongoing responses to changes in the regulatory environment are required.