TANAKA CO.,LTD.

The construction-related industry to which customers belong is highly susceptible to economic conditions, interest rate trends, land price trends, and housing tax systems, and business performance may be affected if the business environment deteriorates due to a decline in income outlook caused by economic downturn, rising market interest rates, rising land prices, or stricter tax systems. In particular, if the number of capital expenditure projects or new housing starts declines in the sales territory, there is a risk that this could lead to a decrease in net sales. The Company addresses this through prior marketing research, but it is difficult to completely avoid changes in external environmental factors.

If demand for electrical equipment materials weakens due to an economic downturn, competition with peers may intensify, and selling prices of handled products may decline, thereby narrowing profit margins. For the Group, whose core products are electrical materials and electrical equipment, intensified price competition is a risk that directly affects profitability. There is no description of specific countermeasures in the Annual Securities Report, indicating a structure with high dependence on market conditions.

The Company, in principle, proceeds with the establishment of one to three new branch offices each fiscal year, with a policy of funding approximately ¥300–600 million per branch office through internal funds and borrowings from financial institutions. If a newly established branch office fails to generate the profits initially planned, or if it takes longer than planned to generate profits, the recovery of invested capital may take time, and the increase in the balance of interest-bearing debt could become a burden. Although the Company selects locations based on prior marketing research and internal criteria, the risk of failing to achieve plans cannot be eliminated.

The Group's net sales tend to increase in November, December, and March, when the completion of construction work is concentrated, resulting in seasonal fluctuations in which performance is weighted toward the second half of the fiscal year. This seasonality tends to make first-half performance sluggish, which may affect the accuracy of full-year performance forecasts and cash flow management. The Annual Securities Report does not describe specific measures to smooth out this seasonal fluctuation.

Trade receivables may deteriorate due to the bankruptcy or worsening financial condition of business partners, and if unexpected bankruptcies occur frequently, this could adversely affect business performance. The Group records allowance for doubtful accounts based on historical bad debt rates for general receivables, and based on individually assessed collectability for doubtful receivables, while also thoroughly managing credit through its dedicated Credit Management Department. However, if unexpected bankruptcies occur frequently, additional provisions may be required, potentially putting pressure on earnings.

If earthquakes or other natural disasters, infectious diseases, or other calamities cause significant damage to business locations and a large portion of employees, business activities such as sales could be significantly affected, potentially impacting operating results and financial condition. The Group has formulated a Business Continuity Plan (BCP) and reviews it from time to time to respond to recent natural disasters and new infectious diseases. However, if a disaster or accident of a scale exceeding expectations occurs, the effectiveness of the BCP may be limited.

The Group has recorded goodwill through the acquisition of shares in corporate acquisitions, but if the performance of affiliated companies falls below initial expectations due to sudden changes in the business environment or competitive landscape, resulting in a decline in excess earning power, an impairment loss on goodwill may occur, affecting operating results and financial condition. The occurrence of an impairment loss could lead to a temporary recognition of a large loss, which could be a factor in the deterioration of financial indicators. The Annual Securities Report does not describe specific preventive measures against impairment risk.