KANADEN CORPORATION

Demand for FA equipment, building equipment, semiconductor devices, information and communication equipment, etc. is strongly dependent on market trends of customers and industries, while wireless communication equipment and traffic control terminal equipment are influenced by capital investment by railway operators and public investment by government agencies. If demand in major markets declines or public investment contracts, this may affect business results and financial condition. In response, the Group aims to establish a high-profitability structure and achieve sustainable growth under the medium-term management plan "True Solution 2028," with FY2028 (ending March 2028) as the final year.

The Group has a high degree of dependence on Mitsubishi Electric Corporation as a major supplier, which accounted for 54.2% of total purchases in FY2026 (ending March 2026). If the business relationship with the company becomes difficult to maintain or if product supply trends change, this may have a material impact on business results and financial condition. In response, the Group works to maintain and strengthen relationships with major suppliers while pursuing new product development and strengthening collaboration with partner companies.

Business for government agencies and municipalities in the Infrastructure Business, and business for the construction industry in the Building Equipment Business, tend to have construction completion and inspection/acceptance timing concentrated at the end of the fiscal year, resulting in business performance being weighted toward the fourth quarter. If numerous projects fail to complete construction or inspection/acceptance within the fiscal year, this may affect business results and financial condition. The Group strives to minimize the occurrence of incomplete projects within the fiscal year through strengthened collaboration with customers, suppliers, and partner companies, and thorough management of construction progress and project status.

Due to the diverse range of customers, uniform protection of receivables is difficult, and depending on future developments, an increase in the allowance for doubtful accounts may become necessary, which may affect business results and financial condition. For general receivables, the Group records estimated uncollectible amounts based on historical bad debt rates, while for receivables from doubtful debtors, the Group individually assesses collectability. The Group works to suppress the occurrence of non-performing receivables through credit limits set according to customer business type and financial capacity, obtaining collateral, and continuously monitoring creditworthiness.

The Group's business includes transactions denominated in foreign currencies, and it is not possible to completely avoid the risk of short-term exchange rate fluctuations, which may affect business results and financial condition. In particular, fluctuations between major currencies, including the US dollar and yen, affect the business. The Group utilizes currency hedging transactions such as forward foreign exchange contracts to minimize the impact of short-term exchange rate fluctuations.

Investment securities held by the Group mainly consist of shares in suppliers, business partner financial institutions, and customer companies, and depending on stock market trends, impairment may become necessary. In addition, if corporate acquisitions or capital alliances fail to sufficiently realize effective use of management resources or synergy effects, this may affect business results and financial condition. The Group thoroughly evaluates various risks and effects prior to commencing an acquisition, and regularly monitors the financial condition and business environment of investees.

Amid a declining working population, if the Group is unable to secure and retain excellent personnel in the electronics field, its ability to respond to technological evolution may decline, which may affect business results and financial condition. Securing human resources is considered particularly important for strengthening responsiveness to future technological evolution. The Group strives to secure and develop personnel who will drive sustainable development through formulation of HR policies, support for balancing life events and career, and fostering an organizational culture of systematic talent development.

If the functioning of information systems is disrupted by computer viruses or other causes, or if leakage of confidential information occurs, this may affect business activities, business results, and financial condition. The Group's dependence on information systems in its business activities is increasing, and the significance of this risk is growing. The Group implements risk reduction measures such as prevention of unauthorized access, and works to strengthen information security measures by establishing systems for early detection of incidents and appropriate response when they occur.

In business activities subject to various laws and regulations, should any violation of laws occur, the Group may be subject to administrative dispositions such as suspension of designation by ordering entities, and may lose social credibility, which may affect business results and financial condition. The Group has established the "Kanaden Group Charter of Conduct" and the "Kanaden Group Code of Ethics and Conduct," requiring compliance by all officers and employees. The Group has established a Compliance Committee chaired by the Representative Director and President, which deliberates and implements initiatives to promote compliance.

The Group conducts business activities in East Asia and Southeast Asia, and if geopolitical risks such as unexpected changes in laws and regulations, deterioration of political and economic conditions, or social disruption due to terrorism or war materialize, procurement and sales of products may be significantly affected, which may affect business results and financial condition. The Group strives to minimize impacts by confirming the latest regional information with local staff and local consultants, and taking necessary responses, giving instructions, and raising awareness as needed.