Segue Group Co., Ltd.

Specific business partners account for 59.7% of the purchases of consolidated subsidiary J's Communication Corporation, resulting in a high degree of dependence on specific manufacturers. Unexpected changes to or termination of contract terms could have a material impact on the business and performance. In addition, successive acquisitions of business partner manufacturers, including the Ruckus business and Juniper Networks (acquired by Hewlett Packard Enterprise in 2025), have manifested the risk of changes in business policy.

The top five customers accounted for 31.6% of consolidated net sales in the current fiscal year, indicating a high degree of dependence on major sales partners. If a partner changes its policy or its financial condition deteriorates, net sales could decline significantly. While favorable relationships with major partners are currently maintained, the structural concentration risk remains ongoing.

Due to a cost structure with a high proportion of fixed costs such as personnel expenses, operating profit tends to fluctuate significantly in response to changes in net sales or cost of sales ratio. In the fiscal year ended December 2024, an operating loss of ¥83,700 thousand was recorded in the second quarter, whereas in the fiscal year ended December 2025, full-year operating profit improved substantially year on year to ¥1,854,284 thousand, with notable quarter-to-quarter skew. There is an inherent leverage structure in which operating profit fluctuates more than the range of change in net sales.

J's Communication Corporation settles import payments to overseas manufacturers in US dollars, while most sales are denominated in yen, creating a risk that a weaker yen would increase purchasing costs and reduce profit margins. Hedging is conducted through forward exchange contracts and currency options, but it is not possible to eliminate all risk. Even in a stronger yen environment, there is a risk of reduced profit margins due to a narrowing of the price differential on inventory.

The Group positions M&A and capital and business alliances as important management priorities aimed at expanding market share and business scale, and intends to continue pursuing such activities going forward. Although due diligence is conducted, if unforeseen events not identified or anticipated during due diligence occur, or if expected results are not achieved, the Group's performance and financial position could be adversely affected through impairment of goodwill and other measures. In addition, there is a risk of recording valuation losses on shares held in affiliated companies, business partners, and others, regardless of whether such shares are marketable.

The IT market in which the Group operates is characterized by extremely rapid technological innovation, with new technologies and services being introduced one after another. If the Group is slow to respond to new technologies, or if unexpected new technologies or services become widespread, the competitiveness of its products and services could decline, potentially affecting its business and performance. Although the Group states that it continually takes measures to respond to technological innovation, the speed of change remains a fundamental risk factor.

The Group's business relies heavily on the capabilities and qualities of its engineers, and the recruitment and development of capable engineers, holders of operational know-how, and managers are positioned as the core of its differentiation strategy from other companies. If the Group is unable to recruit and develop the necessary personnel as planned, this could lead to a decline in service quality and constraints on business expansion, potentially affecting performance. Against the backdrop of intensifying competition in the IT talent market, recruitment and retention remain highly challenging.

The Group is subject to a wide range of legal regulations, including the Construction Business Act, the Radio Act, the Telecommunications Business Act, the Act on the Protection of Personal Information, the Foreign Exchange and Foreign Trade Act, and the Worker Dispatching Act. If these laws and regulations are changed or newly enacted, or if the Group fails to comply with them, restrictions on business operations or additional costs could arise, potentially affecting performance. With the expansion of overseas business operations, the Group is required to address regulatory risks both domestically and internationally.

Much of the Group's inventory is consolidated at specific logistics centers, under a centralized management system aimed at improving operational efficiency and reducing costs. If a logistics center were to suffer damage from an earthquake or other disaster exceeding expectations, delivery delays or shortages could occur, potentially affecting the business and performance. While disaster prevention measures and insurance coverage are used to mitigate this risk, the concentration risk remains structurally present.

As part of its overseas business expansion through M&A, the Group has two consolidated subsidiaries in the Kingdom of Thailand. In addition to foreign exchange risk, overseas operations are inherently exposed to country risks such as unexpected changes in laws and regulations, political and economic turmoil, and conflict or terrorism. Should such events occur, they could affect the Group's operating results.