SIIX Corp.

As the automotive-related equipment and industrial equipment fields account for approximately 80% of consolidated net sales, the business trends of customers in these fields directly affect operating results. In the electronics industry, there is a risk that intensifying competition among manufacturers and early obsolescence of products may lead to unexpected price declines and supply-demand gaps, which could result in production adjustments, order cancellations, increased inventory, and reduced profit margins. As a countermeasure, the Group strives to diversify its customer portfolio through the development of new customers and to closely monitor customers' production plans.

The Group conducts overseas transactions in a variety of currencies and terms, and sharp fluctuations in exchange rates could affect net sales and profit. The Group hedges such risks through measures such as matching the currency of procurement and sales, forward exchange contracts, and arrangements with customers regarding the sharing of foreign exchange risk, but complete avoidance of this risk is difficult. Given the Group's global business operations, foreign exchange risk exists as a constant risk factor.

The Group conducts business globally with 2 domestic subsidiaries, 24 overseas subsidiaries, and 3 equity-method affiliates, among others, and country risks—such as deterioration of the political and economic situation, changes in laws, regulations, and tax systems, changes in monetary policy, and social unrest in each country or region of operation—could affect operating results and financial condition. This also includes hazard risks such as natural disasters and the spread of infectious diseases. The Group seeks to establish an agile response system by diversifying production sites across multiple countries, but such risks cannot be completely eliminated.

Some components depend on specific suppliers, and changes in trading rights may occur due to changes in a supplier's agency policy or consolidation/reorganization. If accidents, natural disasters, pandemics, geopolitical risks, or large-scale system failures affect suppliers or the logistics network, resulting in an inability to procure components stably, this could affect operating results. Leveraging over 60 years of experience and networks as an electronic components trading company, the Group works to ensure stable procurement by diversifying its procurement sources among various domestic and overseas electronic component manufacturers.

The Group operates a biologic antibody drug CDMO business through Renzoku Biologics Co., Ltd., which became a subsidiary on March 11, 2024. This business requires research and development such as the establishment of manufacturing methods, as well as obtaining approvals and licenses from pharmaceutical regulatory authorities, and since research and development expenses and other costs will be incurred prior to monetization, this could affect profit and loss. If there is a delay in obtaining approvals and licenses, there is a risk that the timing of monetization will also be delayed. As this represents entry into a business domain different from the EMS (Electronics Contract Manufacturing) business, risks exist in both regulatory response and technology establishment.

If capital investment becomes excessive due to changes in customers' production and sales policies, economic downturns, or other factors, the increased burden of depreciation expenses could affect operating results and financial condition. In addition, if business profitability declines due to intensifying competition or deterioration of the political and economic situation, and it is determined that tangible fixed assets such as factories and production facilities cannot generate sufficient cash flow, recognition of impairment losses would be required. The Group strives to reduce the risk of excess equipment by prioritizing efficiency-improving investments and maximizing the use of existing production lines, but there are limits to addressing changes in the external environment.

The Group strives for thorough quality control of all products manufactured domestically and overseas, with the President and Representative Director designated as Chief Quality Officer, and organizational responses are handled on a consolidated basis. However, if quality nonconformities, defects in the manufacturing process, or unexpected serious complaints occur, this could affect operating results. Given the nature of the EMS (Electronics Contract Manufacturing) business, which involves manufacturing a wide variety of products across multiple sites, thorough quality control is essential. The Group promotes continuous improvement and reform under the Group Quality Policy, but complete elimination of this risk is difficult.

The Group holds confidential information such as business partner information, trade secrets, and personal information, and if such information is leaked, altered, or lost due to unauthorized access from cyberattacks or human error, this could affect operating results. Cyberattacks exceeding expectations or unforeseeable fraudulent acts could also lead to the suspension of business activities. The Group is working to strengthen its security management system, provide regular employee training, and introduce security countermeasure products.

Increased costs for procuring materials and fuel due to carbon taxation, increased fuel costs from the transition to electricity derived from renewable energy, and reputational decline (leading to fewer new orders, cancellation of existing contracts, and customer attrition) in the event of insufficient environmental initiatives could affect operating results. Physical risks also exist, such as equipment damage and increased restoration costs from heavy rain and typhoons, disruption of the value chain, and reduced productivity from avoiding extreme heat hours. The Sustainability Committee, chaired by the President and Representative Director, works to formulate sustainability strategies, including climate change issues, and to address related challenges.

Securing and developing personnel with diverse backgrounds is essential for sustained global growth, and failure to secure or develop the necessary personnel could affect business development and operating results. As the Group conducts business activities in countries around the world, there is a risk that intensifying competition in labor markets in each country and region could make it difficult to secure personnel. The Group works to develop and retain personnel by strengthening employee training and promoting work styles that take work-life balance into consideration.