SUZUDEN CORPORATION

FA Equipment and Electronic & Device Equipment are highly dependent on trends in private-sector capital investment and demand from industries related to semiconductor manufacturing equipment, while Electrical Installation Materials are strongly dependent on demand for new housing starts and building equipment. A decline in private-sector capital investment due to economic downturn, a drop in demand from electrical equipment and machinery manufacturers, and a decrease in construction investment and new housing starts would directly affect business results. Sensitivity to specific industries and business cycles is high, and the risk of fluctuation in performance is structurally inherent.

Of the consolidated net sales of ¥46,631,604 million for FY2025 (ended March 2025), sales to the Tokyo Electron group amounted to ¥10,176,200 million (21.8% of net sales), indicating an outstanding degree of dependence. Changes in the customer's capital investment trends or production plans would directly affect business results and financial condition, and if the customer's production plans are postponed, temporary inventory increases due to delayed delivery could occur. As countermeasures, the Company is strengthening close cooperation with specific customers and promoting the acquisition of new customers, including in other industries.

The Company has concluded a control equipment distributor certification and basic sales and purchase transaction agreement with the Industrial Automation Business Company (IAB) of OMRON Corporation, a major supplier, and depends on this supplier for the procurement of FA components, various controllers, sensing equipment, and other products. If this agreement is changed or terminated, it may temporarily affect business results. Concentration on a single supplier constitutes a structural risk factor from the standpoint of procurement stability.

The Company faces a severe competitive environment across all business areas: FA equipment distributors and manufacturers' subsidiaries and sales companies in the FA Equipment and Electronic & Device Equipment fields, mail-order retailers in the Information & Communication Equipment field, and electrical installation materials distributors in the Electrical Installation Materials field. If the Company is unable to maintain its competitive advantage, it may affect its business, performance, and financial condition. The Group continues to work on strengthening its competitiveness, but specific details of differentiation measures have not been disclosed.

The Company holds a certain amount of inventory to handle a wide variety of products and to prevent lost sales opportunities, creating a risk that dead stock may arise due to sudden changes in the business environment or shifts in demand trends. If dead stock occurs, it may adversely affect the financial condition and business results through write-downs of inventory valuation. The risk that inventory amounts may temporarily increase when a specific customer (related to semiconductor manufacturing equipment) postpones its production plans is also explicitly noted.

There is a risk that accounts receivable may deteriorate due to bankruptcy or worsening financial condition of business partners. Although credit management is conducted based on credit management regulations, if large-scale economic fluctuations cause deterioration of major receivables or widespread deterioration of receivables, this may lead to a worsening of financial condition, business results, and cash flows. Since the proportion of sales to industries highly sensitive to economic conditions is high, credit risk tends to increase relatively during economic downturns.

In principle, if a handled product has a defect, the manufacturer is responsible for addressing it; however, there is a possibility that customers or end users may bring claims for damages or litigation against the Group. Although the Company has product liability insurance, if the insurance does not cover the loss or if a claim exceeds the coverage limit, it may affect business results and financial condition. Given the business characteristics of a trading company handling products from numerous manufacturers across many categories, management of product-related risks remains an ongoing challenge.

Large-scale natural disasters such as earthquakes and storms/floods, as well as infectious disease pandemics, may disrupt business activities at sales and logistics locations and affect business results. It is specifically noted that the Tokyo Distribution Center, the core of the logistics function, has a single-floor structure, creating a risk that infection could spread easily if a case occurs there. Although the Company aims to minimize impact through the establishment of business continuity management (BCM), structural vulnerabilities remain.

At present, public regulations do not have a particularly distinctive impact on the business, but if handled products contain substances with environmental impact, the Company may be forced to discontinue handling such products. If a product becomes subject to new environmental regulations or if adverse environmental effects are discovered, there is a risk that continued sale of the product will become impossible. Given the trend toward strengthening environmental regulations, ongoing confirmation of the compliance of handled products is necessary.

Toshio Suzuki, Representative Director, Chairman and CEO, has played an extremely important role for many years in determining and executing management policy and business strategy, resulting in a high degree of dependence on him. If he becomes unable to continue his duties for any reason, it may affect the business and performance. The Company is working to reduce this dependence through enhanced information sharing at the Board of Directors and other meeting bodies and through strengthening the management organization, but disclosure regarding the state of succession planning remains limited.