TACHIBANA ELETECH CO., LTD.

The Group's core business is systems sales of FA Equipment products, semiconductor device products, and facility equipment products, with customers spanning a wide range of industries centered on manufacturing. If a deterioration in economic conditions leads to a decline in demand across various industries or a reduction in capital expenditure, this could directly and adversely affect the Group's business performance and financial position. A structural characteristic of high dependence on specific industries makes the Group susceptible to business cycle impacts, which is a challenge.

Procurement of the Group's principal products—FA Equipment products (inverters, servos, programmable controllers, etc.) and semiconductor products (microcontrollers, ASICs, power modules, etc.)—is concentrated with Mitsubishi Electric Corporation and Renesas Electronics Corporation. Should these key suppliers change their business strategies or shift their supply policies, this could have a material impact on the Group's product procurement and business performance. Trends in the market and product strategies of key customers also constitute a similar risk factor.

The Group provides in-house designed hardware and software as well as contract manufacturing services, and also uses external companies for certain product manufacturing. While the Group has established a dedicated quality control department and works on supplier factory audits and the continuous improvement of quality management systems, defects in provided products or services could give rise to liability for damages. Quality risk is inherent in the manufacturing process, including outsourced operations.

The Group holds customer information and confidential business and technical information in the course of its business activities, and has implemented enhanced management systems and information system security measures. However, if data loss or leakage occurs due to computer virus infection or unauthorized access, this poses a risk of adverse effects on business performance and financial position through a decline in social credibility and the occurrence of liability for damages. The threat of cyberattacks continues to grow with the advance of digitalization.

The Group sells products to overseas customers and procures from overseas suppliers, and is subject to the effects of exchange rate fluctuations when local currency-denominated transactions are translated into yen in the consolidated financial statements. The Group works to mitigate fluctuation risk among major currencies, including the US dollar, through currency hedging transactions such as forward foreign exchange contracts; however, the timing of such forward contracts and sharp exchange rate movements could affect business performance and financial position. The Group's overseas presence, centered on Asia, results in exposure to multiple currencies.

The Group operates multiple overseas locations, centered on Asia, importing and selling products locally. While the Group pays close attention to local laws and conditions and strives to respond promptly and appropriately, significant changes in economic conditions, political and social systems, revisions to laws and tax systems, or changes in tariff policy could affect business activities and business performance and financial position. Heightened geopolitical risk and intensifying trade friction are potential risk factors.

In the event of a large-scale natural disaster such as an earthquake, typhoon, or fire, there is a risk of damage to company buildings and disruption to head office, logistics, and sales functions. In addition, damage to suppliers or customers, or delays in the restoration of social infrastructure, could significantly affect product procurement and sales, adversely affecting business performance and financial position. The risk of ripple effects across the entire supply chain is an important issue for business continuity.

If social and political disruption caused by terrorism, international conflict, or the spread of infectious diseases becomes prolonged, stagnation of business activities poses a risk of adverse effects on overall management. As demonstrated by the experience of the COVID-19 pandemic, for the Group, which operates globally, such sudden changes in the external environment could have wide-ranging effects across procurement, sales, and staffing.

The Group conducts various training programs tailored to employee attributes under a human resource development policy that emphasizes employee fulfillment and growth. However, if the declining birthrate, aging population, or intensifying competition in the labor market make it difficult to secure or develop the necessary personnel, this could affect business performance and financial position through a decline in operational capability. Securing specialized personnel in both technical and sales fields is key to business growth.

The Group has established a legal compliance framework through the establishment of a code of corporate conduct, implementation of compliance training, establishment of a General Affairs Compliance Department, and development of internal control systems. However, if unforeseen circumstances result in compliance violations or inadequate responses, this could affect business performance and financial position through administrative sanctions, litigation risk, and a decline in social credibility. There is also a risk that the tightening of environmental regulations could result in additional costs or restrictions on business activities.