SERENDIP HOLDINGS Co.,Ltd.

The Group's core strategy centers on business succession through M&A, but there is a possibility that the initial medium-term management plan cannot be achieved due to delays in post-acquisition PMI plans or sudden changes in the business environment. Investee companies include those undergoing restructuring of their business and management organizations, which carries a high risk of earnings volatility. In addition, as the number of consolidated subsidiaries increases, there is a risk that consolidated accounting for investee companies with insufficient management systems cannot be performed in a timely and appropriate manner.

Goodwill arising from corporate acquisitions is recorded on the consolidated balance sheet and amortized over the investment recovery period, but there is a risk of recognizing impairment losses if expected results are not achieved due to changes in the business environment or other factors. Manufacturing subsidiaries hold substantial tangible fixed assets, and impairment losses may also arise if the recoverable amount falls below book value due to a significant decline in business earnings or idling/obsolescence of equipment. These factors could have a material impact on the Group's financial position and operating results.

The Group primarily finances corporate acquisitions through borrowings from financial institutions, and interest-bearing debt is at a high level relative to total assets. Some borrowings include financial covenants based on ordinary income/loss and net assets, and there is a risk of acceleration of debt repayment obligations if these covenants are breached. In a rising interest rate environment, increased interest payments could put pressure on profits, potentially affecting the Group's financial position and operating results.

The Group's core subsidiaries, Serendip Automotive, Uniclear, and the Cetec Kariya Group, all have high sales ratios to the automotive industry, and their performance is significantly affected by the sales volume and plant utilization of the Toyota Motor Group and Aisin Group in particular. An economic downturn or contraction in demand in key markets such as Japan, North America, Europe, and Asia would directly affect the Group's financial position and operating results. There is also a risk that delayed response to industry structural changes driven by advances in CASE-related technologies could lead to a decline in competitiveness.

Core subsidiaries procure raw materials and parts from external suppliers, and rising crude oil and energy prices, global inflationary pressure, and exchange rate fluctuations push up material costs, which in turn raises manufacturing costs. If price increases cannot be sufficiently passed on to product prices, profitability may deteriorate. There is also a risk of production and manufacturing delays due to global supply tightness or unforeseen accidents at suppliers, and Uniclear also faces supply responsibility risk due to its dependence on specific subcontractors.

Operational disruptions and supply chain damage caused by ransomware and similar attacks continue across a wide range of industries, including manufacturing. If measures covering core systems, factory networks (OT), and outsourcing partners are insufficient, production stoppages, shipment delays, increased recovery costs, and information leakage may occur. In addition, the expanding use of generative AI and cloud services in business operations is increasing the risk of leakage of confidential information, personal information, and technical information. Given the nature of the business, which handles confidential information of client companies, information leakage is directly linked to loss of trust and claims for damages, and could have a material impact on business strategy and operating results.

The Group regards the dispatch of professional executives and consultants in PMI as a unique competitive advantage, and is actively recruiting IT engineers and other personnel as it expands the Professional Solutions Business. If the Group is unable to secure highly specialized and capable personnel, or if such personnel leave, its business execution capabilities may decline, potentially hindering the Group's overall growth strategy. In manufacturing as well, intensifying competition to secure the personnel needed for plant operations and rising labor costs could affect the Group's financial position and operating results.

Core subsidiaries are manufacturers of automotive interior and exterior parts and other products, and quality defects could result in large-scale recalls or product liability (PL) claims. Although the Group has PL insurance, there is no guarantee that it will sufficiently cover the final amount of compensation, and substantial cost burdens and significant damage to corporate reputation could lead to a decline in sales. In addition, if it becomes necessary to record a provision for product warranties in preparation for significant defects, this could affect the Group's financial position and operating results.

The Group expects its overseas sales ratio to be 25.6%, and transactions with the United States and Thailand are denominated in US dollars and Thai baht, directly exposing the Group to exchange rate fluctuations. Since the local-currency income and expenses of overseas subsidiaries are translated into yen when preparing consolidated financial statements, exchange rate fluctuations beyond expectations could affect business performance. Overseas subsidiaries and offices tend to have few management personnel, which can lead to operations becoming overly dependent on specific individuals, creating a risk of fraud; inadequate management could affect the Group's financial position and operating results.

The Cetec Kariya Group's operations inevitably involve the use of chemicals containing hazardous substances and wastewater treatment, making it subject to strict regulations under the Water Pollution Control Act, the Waste Management Act, chemical substance management laws, and other regulations. If wastewater standards are tightened or restrictions on the use of specific substances are strengthened, substantial capital investment will be required to upgrade wastewater treatment facilities or change processes. Should a violation of laws and regulations occur, such as exceeding wastewater standards or improper waste disposal, this could have a material impact on operating results due to operational suspension orders, penalties, cleanup cost burdens, and loss of social trust.