DENKYO GROUP HOLDINGS CO.,LTD.

The Group wholesales daily-life-related products such as electrical appliances, audio/communication equipment, and health and beauty devices, and its net sales are correlated with domestic economic trends and personal consumption. If uncertain factors beyond the assumptions made at the time of planning and budgeting materialize, business performance may be affected. As a countermeasure, the Group continuously monitors economic trends and has strengthened the division responsible for promptly responding to changes in consumption trends through appropriate product handling.

Price competition transcending business types and formats is intensifying among major sales channels such as specialty mass retailers, and consolidation and oligopolization are progressing. Such trends may affect the Group's management policies, management strategy, and business performance. As a countermeasure, the Group manages appropriate pricing and continuously monitors trends among major sales channels.

The Group's net sales are heavily dependent on several dozen major sales customers, and if transactions with these customers fluctuate significantly for any reason, business performance may be affected. Although the Group currently maintains good relationships, the risk of customer concentration is structurally inherent. As a countermeasure, the Group is focusing on developing new sales customers to diversify this risk.

Many of the products handled are manufactured overseas, and fluctuations in exchange rates may affect the prices of purchased products. In particular, during periods of yen depreciation, there is a risk that rising procurement costs will pressure profitability. As a countermeasure, the Group has implemented measures to minimize the impact of short-term exchange rate fluctuations through forward exchange contracts to mitigate fluctuation risk and by holding foreign currency-denominated deposits (US dollars).

Original products and many of the Group's suppliers and manufacturers have a high proportion of production concentrated in China, and changes in the situation in that country or the occurrence of social incidents could hinder production. If a production stoppage or delay occurs, it may affect the Group's business performance. As a countermeasure, the Group is considering developing transactions with overseas manufacturers outside China.

Original products carry a certain degree of inventory risk, and depending on market sales conditions, excess inventory may arise, affecting the Group's financial position. In addition, if new products fail to gain consumer support, this may adversely affect business performance and financial condition, including the burden of invested funds. As a countermeasure, the Group is building a system that strengthens inventory monitoring and enhances the marketing division to reflect consumer needs in product development.

If a large-scale defect or recall occurs in an original product, it may affect the Group's business performance and financial position. Although the Group has strengthened its structure by consolidating quality control functions across the Group, the risk cannot be completely eliminated. As a countermeasure, the Group has taken out product liability insurance and established a system for prompt response in the event of a problem.

The computer system is a centralized system connecting the data center with terminals at each business office, and network failures may affect business performance. In addition, if personal information or confidential information of business partners is leaked, this could lead to loss of credibility and the occurrence of liability for damages. As a countermeasure, the Group has established a backup system for the data center, formulated internal regulations, provided employee training, and implemented system security measures.

If a large-scale disaster such as an earthquake or typhoon occurs at business locations, logistics facilities, or information management-related facilities, the Group may suffer significant damage, which could affect business performance. The occurrence and spread of infectious diseases may lead to a decline in sales due to behavioral restrictions and reduced consumer sentiment. As a countermeasure, the Group has formulated a business continuity plan (BCP) and implemented infection control measures such as telework and staggered commuting hours.

The Group carries out M&A and business alliances with the aim of enhancing corporate value; however, if there is a significant change in the market or competitive environment after an acquisition or alliance, or if business plans cannot be carried out as intended, business performance may be affected due to the inability to recover invested funds or the occurrence of additional costs. As a countermeasure, the Board of Directors verifies the consistency of individual deals with the growth strategy and the feasibility of business plans, and defines the implementation items and target timing for post-acquisition integration.