MITACHI CO., LTD.

The Company has a high degree of dependence on automotive parts manufacturers, including DENSO Corporation, its principal customer, and changes in trends in the automotive-related market or in the customers' business performance and purchasing policies directly affect the Group's business performance. Given the business structure centered on Semiconductor & Electronic Components Procurement and Sales and EMS (Electronics Manufacturing Services), there is a risk that a reduction in production or a shift in procurement policy by a specific customer could lead to a sudden change in sales and profit. Although the Group strives to maintain close relationships with its customers, the high degree of dependence itself remains a structural challenge.

The Company depends on transactions based on the Toshiba Business Partner Agency Basic Agreement with its principal supplier, the Toshiba Corporation group (Toshiba Device & Storage Corporation), and changes in Toshiba's business strategy, product development trends, or agency policies could affect the Group's distribution channels. If a gap arises between customer needs and the supplier's product lineup, securing alternative sources of procurement may become difficult, posing a risk of material impact on the Group's financial position and business performance. Although the Group has maintained a close relationship over many years, the concentration on a single supplier entails an inherent vulnerability in terms of supply stability.

The Group maintains appropriate inventory levels to address discontinued products of semiconductor and electronic component manufacturers and to ensure business continuity, but there is a risk of increased or stagnant inventory if a customer sharply reduces production or if orders fall significantly short of demand forecasts. Should stagnant inventory arise, the Group would need to recognize an inventory valuation loss, directly and adversely affecting its financial position, business performance, and cash flows. Given the industry characteristic of severe supply-demand cycles in the semiconductor market, the accuracy of demand forecasting is key to inventory management.

Given the business structure that includes overseas sales and production of products, fluctuations in the US dollar and various local currencies affect the yen-translated figures in the consolidated financial statements, and domestically, the procurement and sale prices of overseas-produced goods are also affected by exchange rate fluctuations. In addition, since business operating funds are procured primarily through borrowings from financial institutions, a significant rise in interest rates could increase interest expenses and put pressure on profits. The Group strives to reduce this risk by diversifying its funding methods, among other measures, but it cannot completely eliminate the impact.

With the head office and logistics centers concentrated in the Tokai region, if a large-scale earthquake, typhoon, or other natural disaster in the region causes severe damage to facilities, sales and logistics operations could be significantly disrupted. If natural disaster damage occurs at other business locations, including overseas sites, there is a risk of obstacles or delays to business operations, including the suspension of production plant operations. The geographic concentration risk arising from the concentration of business sites in the Tokai region has become an important issue for business continuity planning.

Sales of semiconductors, electronic components, and EMS (Electronics Manufacturing Services) are directly affected by the economic conditions, trade environment, and market trends of each country in the sales region. Significant fluctuations in resource and raw material prices, sharp increases or decreases in demand accompanying economic fluctuations, and changes in trade structure (such as tariffs and trade regulations) may affect the Group's financial position, business performance, and cash flows. For the Group, which is expanding overseas, including in the Asian region, responding to geopolitical risk and regulatory changes in various countries remains an ongoing challenge.

The semiconductor, electronic components, and EMS (Electronics Manufacturing Services) market is subject to intense competition from domestic and overseas trading companies and manufacturers, requiring responses to technological innovation and changing customer needs. If the Group is slow to provide products and technologies suited to market needs, or if it cannot compete against an increase in new entrants or price competition, there is a risk of decline in sales and profit. In the semiconductor industry, where the technological innovation cycle is short, obsolescence of handled products and declining competitiveness are structurally linked directly to business performance.

The Group is promoting systemization aimed at improving the efficiency of its core business operations, but if system recovery takes time due to unexpected trouble from a severe disaster or a cyberattack, there is a risk of significant disruption to business operations. If an information leak occurs due to unauthorized access or similar causes, it could lead to a decline in social trust and affect the financial position and business performance. Although the Group has established an Information Management and Security Committee to strengthen its risk management system, continuous response to increasingly sophisticated cyber threats is required.

The Group operates overseas, including in the Asian region, and changes in the political, social, and economic conditions of each country, as well as changes in laws and regulations, could disrupt distribution, sales, and operational activities. If there is a sudden change in the local regulatory environment or political instability, business continuity at overseas sites could become difficult, posing a risk of impact on the Group's overall financial position, business performance, and cash flows. As overseas expansion increases, managing country risk has become an increasingly important management issue.

The Group recognizes securing the employment of excellent employees as an important issue for the continuity and development of its business, and is working on recruiting and developing personnel; however, if it is unable to secure the necessary personnel or if personnel attrition exceeds expectations, business execution and the implementation of plans could be affected. Amid intensifying competition for specialized talent in the semiconductor and electronic components field, a shortage of personnel poses a risk of reducing the Group's ability to execute its medium- to long-term growth strategy. Although the Group's management philosophy positions employees as