DENKI KOGYO CO.,LTD.

In the Telecommunications-Related Business, the company has a high dependence on orders and sales from mobile communication operators and broadcasters, while in the High-Frequency-Related Business it depends heavily on the automotive industry, including automobile manufacturers. Depending on trends in capital expenditure demand among these business operators, there is a possibility of a material impact on business performance and financial condition. On the procurement side as well, there is a risk arising from excessive dependence on specific suppliers. As countermeasures, the company is working to expand and differentiate its customer base and create new revenue sources, while also striving to build alternative business partners.

Due to fluctuations in the supply-demand environment of related industries, such as intensifying price competition in the market, technological innovation, and rising procurement prices for raw materials such as steel, the company may be unable to achieve its initial sales and profit targets. In addition to closely monitoring the movements of other companies in the industry and responding to technological innovation, the company is working to expand profits through operational efficiency improvements and cost reduction activities.

The company holds a large amount of customer and business partner information as well as confidential technical and business secrets. Cyberattacks, unauthorized access, targeted phishing emails, and inappropriate information disclosure by employees could result in system failures, information leaks, cyber fraud damage, or loss of important information, potentially impacting business performance and financial condition, including reputational damage. The company is thoroughly implementing security management measures, including expanding information security countermeasures and conducting regular education and targeted attack email drills.

If the company is unable to secure personnel with sufficient knowledge and skills, particularly in technical departments, or if employee motivation declines or turnover occurs, the company may not be able to expect improvements in competitive advantage or corporate value, potentially affecting business performance and financial condition. The company strives to prevent talent attrition and secure necessary personnel through enhanced monitoring of overtime work, analysis of reasons for turnover, and use of motivation surveys.

The company applies revenue recognition over a certain period for construction contracts and some equipment installation work, among others. If it becomes necessary to revise the estimated total costs or the planned period, this could have a material impact on business performance and financial condition. The company continuously reviews estimated total costs and planned periods for each project, striving to improve the accuracy of total cost estimates and reflect them in financial results in a timely manner.

The company has positioned M&A as one of its growth strategies, but if a business does not progress as planned after an M&A transaction and fails to achieve expected performance, or if returns commensurate with the investment amount cannot be obtained, this may affect business performance and financial condition. The company has established a system in which appropriate due diligence is conducted prior to executing M&A, and investment decisions are made following thorough deliberation by the Investment Committee.

In overseas business, unexpected changes in laws and regulations, deterioration of political and economic conditions, natural disasters, epidemics, conflicts, terrorism, and other social disruptions could affect the company's business, financial position, results of operations, and cash flows. In addition, foreign currency-denominated transactions carry the risk that amounts recorded after conversion into yen may be affected by exchange rate fluctuations. The company strives to minimize risk by gathering information on tax systems, laws and regulations, and political and economic conditions in the countries where it operates, as well as through the use of forward exchange contracts and other measures.

If impairment losses need to be recognized on tangible fixed assets, intangible fixed assets, or investments and other assets due to changes in fair value and business environment, this may affect business performance and financial condition. The company seeks to reduce this risk by analyzing profitability and making investment decisions after examining anticipated risks and countermeasures at the time of investment planning.

If large-scale natural disasters such as earthquakes and typhoons, or other events, cause disruptions to business operations such as the suspension of manufacturing lines, this could have a material impact on business performance and financial condition. The company seeks to minimize damage and ensure business continuity through the development and strengthening of Business Continuity Management (BCM) and Business Continuity Plans (BCP).

The company is subject to various laws and regulations, including the Construction Business Act, the Act on Promotion of Subcontracting Small and Medium-sized Enterprises' Business, and the Product Liability Act. If it is determined that the company has, as a result of differences in interpretation of laws and regulations, come into conflict with such laws, this could affect business performance and financial condition. The company maintains a compliance system through thorough internal controls and strict adherence to compliance standards.