KAGA ELECTRONICS CO.,LTD.

The Electronic Components Business (Semiconductor & General Electronic Components Sales, EMS (Electronics Manufacturing Service), etc.) is directly affected by economic fluctuations in major markets such as Japan, North America, Europe, and Asia. Expansion or contraction of demand may affect business performance and financial condition. Where dependence on a specific region is high, an economic downturn in that region could have a significant impact on revenue.

In businesses that include overseas product sales and manufacturing, transactions denominated in major currencies such as the US dollar, euro, British pound, Chinese yuan, and Thai baht are subject to the effects of exchange rate fluctuations upon conversion into yen. Although hedging transactions such as forward foreign exchange contracts are conducted, timing mismatches in contracting or sharp exchange rate fluctuations may affect business performance and financial condition.

As the Group has sales and manufacturing bases in countries around the world, it is exposed to risks arising from changes in laws and regulations due to local political factors, sudden inflation or default, terrorism and war, natural disasters such as earthquakes, typhoons and floods, and the spread of infectious diseases. Should such events occur, they could have a material impact on business performance and financial condition through the suspension of operations at local bases or the loss of sales opportunities.

Although the Group has partnerships with more than 2,000 manufacturers and trading companies in Japan and overseas, changes in suppliers' distributor policies, consolidations, or factory operation suspensions due to natural disasters, pandemics, or geopolitical risks could result in the loss of business rights or difficulty in procurement. The market for electronics-related products is highly competitive, and the Group seeks to differentiate itself through specialized services in response to price competition and an increasing number of new entrants; however, if it is unable to respond effectively, its business performance may be affected.

In the development, manufacturing, and sale of electronics products, the Group faces a complex set of risks including product supply liability, defect warranties, investment in new products, insufficient response to rapid technological innovation, and reputational damage. If the Group is unable to adequately anticipate changes in the industry and market and fails to develop attractive products, future growth and profitability may decline, potentially affecting business performance and financial condition.

In import/export trade for procurement and sales, the Group must scrutinize customers, suppliers, products, destinations, transport methods, and trade finance documents in order to comply with each country's laws and regulations concerning security trade control (including re-export regulations under U.S. export controls). Should a violation of laws or regulations occur, it could result in restrictions on business activities, loss of social credibility, and adverse effects on business performance and financial condition.

If a defect in a product or service provided by the Group causes an accident or damage to a business partner or its customers, the Group may be held legally liable for damages. Although risk-avoidance measures such as exchanging product specification documents, confirming compliance with legal regulations, and taking out various liability insurance policies are in place, a serious problem could still affect business performance and financial condition.

In the highly competitive electronics industry, recruiting and developing excellent talent is essential, and competition for recruitment has intensified in recent years. The Group is working to comply with laws and regulations such as the caps on overtime work and mandatory paid leave, and to create a workplace environment where diverse talent can work; however, failure to comply with laws and regulations or to secure and develop the necessary talent could affect business performance and financial condition.

The Group has numerous group companies in Japan and overseas, and there is a risk that the development of internal control systems may not keep pace with the increase in group companies through new M&A activity or with changes in the external environment. If internal controls do not function properly, fraud or misconduct could lead to false statements in securities reports or compliance violations, resulting in a loss of trust from business partners and potential claims for damages.

The Group holds various types of confidential information belonging to its business partners and is exposed to risks such as information leakage, tampering, or service disruption caused by cyberattacks or human error. Although measures such as formulating group-wide information security guidelines, introducing cutting-edge security products, conducting regular employee training, and establishing incident response procedures are in place, should an information leak or similar incident occur, it could lead to claims for damages, loss of social credibility, and the departure of business partners, thereby affecting business performance and financial condition.