MCJ Co.,Ltd.

In the BTO-based sales operations of PC manufacturing and sales subsidiaries, a sharp rise in raw material prices or a shortage of supply could lead to increased costs and delays in product shipment. In addition, if unsold inventory arises due to sales forecast errors or sudden price revisions by parts manufacturers, valuation losses on inventory assets could affect business performance. There is also a risk of cost increases stemming from extended delivery times or rising freight costs in the supply chain, although the Group has a degree of resilience through monthly sales price revisions.

Subsidiaries that procure from overseas suppliers employ hedging measures such as forward foreign exchange contracts against exchange rate fluctuation risk on foreign currency-denominated monetary claims and obligations, and swap transactions against interest rate fluctuation risk. However, if a significant divergence arises between contract amounts and market value due to sharp exchange rate fluctuations, whether the yen appreciates or depreciates, certain valuation losses may occur and affect business performance. Although hedging measures are in place, complete protection against sharp fluctuations is difficult.

The Group's core business is the manufacture and sale of digital devices centered on PCs, but there is a risk that rapid innovation in digital-related technologies, including AI and robotics, could cause sudden shifts in user behavior and preferences toward digital devices. If innovative devices or technologies emerge that replace existing digital devices, the positioning and value of PCs and peripheral equipment could change significantly, potentially having a material impact on the Group's business performance. This risk relates to the fundamental core of the Group's main business and requires continuous monitoring of the business environment.

The Group positions M&A as an important management priority for entering new businesses, strengthening existing businesses, and acquiring related technologies, and conducts detailed prior due diligence regarding the growth potential, financial condition, and contractual relationships of target companies. However, if issues not fully identified during due diligence arise after integration, such as contingent liabilities or newly discovered latent risks, or if the post-integration business plan does not proceed as expected due to dramatic changes in the market or competitive environment, business performance may be affected. It should also be noted that when a new business is added, risks specific to that business are comprehensively incorporated as risks of the holding company.

Country risk, such as regulatory or legal changes by foreign governments, or deterioration in political or economic factors, in the countries or regions where the Group operates or where major suppliers or important business partners operate, could affect business performance and financial condition. If political, social, or economic disruption occurs due to war, conflict, terrorism, imposition of economic sanctions, currency crises, changes in import/export regulations, or the spread of infectious disease, there is a risk that business activities may not proceed as expected, or that investment recovery may be delayed or become impossible. The impact is particularly significant for manufacturing businesses with a high dependence on overseas procurement.

Subsidiaries manufacturing precision equipment such as PCs are subject to regulations including the Product Liability Act, the Electrical Appliances and Materials Safety Act, and the Consumer Contract Act, while subsidiaries operating Complex Cafés and hotels are subject to the Hotel Business Act, the Food Sanitation Act, the Adult Entertainment Business Act, and the Fire Service Act, among others. If accidents such as fires, smoke, explosions, or food poisoning, or violations of laws and regulations, develop into major litigation issues, business licenses could be revoked or business suspension could be ordered. In addition, if business activities become constrained due to revisions to existing laws and ordinances or the enactment of new laws, business performance could be affected, requiring ongoing response to a wide range of regulations.

The Group has established an information management system and provides ongoing education and guidance to officers and employees in accordance with the Personal Information Protection Act, but it may not be possible to completely prevent the leakage of customers' personal information. Should an information leak occur, the Group could face a decline in creditworthiness and claims for damages, potentially affecting business performance. Given that the Group as a whole holds a large volume of customer information, continuous strengthening of the information management system is an important priority.

Subsidiaries operating Complex Cafés and fitness gyms, as well as hotel-operating subsidiaries, operate stores and hotel facilities primarily in urban areas across Japan, and there is a risk that all or part of security deposits and leasehold deposits may not be recoverable due to deterioration in the financial condition of lessors. If the profitability of stores and other facilities deteriorates, losses associated with closures and impairment losses on fixed assets may occur, potentially affecting business performance. Given the large number of stores and facilities operated nationwide, there is a risk that declining profitability at individual facilities could have a cumulative impact on overall business performance.

PC manufacturing and sales subsidiaries supply OEM products with proprietary specifications to multiple consumer electronics retailers, and PC parts sales subsidiaries also conduct business with multiple consumer electronics retailers. If accelerating restructuring in the consumer electronics retail industry results in control shifting to retailers that favor competitors' products, there is a risk that handling of the Group's products could be discontinued. Dependence on specific sales channels is a factor that increases the risk of fluctuations in business performance, and diversifying sales channels remains a challenge.

The Group has implemented various countermeasures against natural disasters such as earthquakes, but if unforeseen circumstances arise due to large-scale disasters or the spread of infectious diseases such as COVID-19, business performance could be affected. Given that the Group operates numerous face-to-face service businesses such as Complex Cafés, hotels, and stores, its business structure is highly susceptible to direct impacts from sudden declines in customer visits or business restrictions during an infectious disease outbreak. Risks of production and shipment halts due to disasters also exist in the manufacturing and logistics areas.