TRUSCO NAKAYAMA CORPORATION

As the company's core business is wholesale distribution of indirect materials for manufacturing and construction sites, its performance tends to move in tandem with economic trends in the manufacturing sector. If unexpected economic fluctuations occur, this could directly affect sales and profit. The company makes ongoing capital investments to meet needs for small-lot, wide-variety products, and there is also a risk that the burden of fixed costs will become relatively heavier during economic downturns.

Under its "ownership-based management" (motsu keiei) policy, the company owns buildings, land, vehicles, and other assets. In the consolidated balance sheet for FY2025 (ending December 2025), total fixed assets stood at a high level of ¥146,712 million (47.6% of total assets). If the economic value or profitability of owned fixed assets declines significantly due to changes in the economic environment, appropriate impairment accounting may be required, which could have a material impact on the financial position and business results. The fact that fixed assets account for roughly half of total assets is a financial structural feature that investors should particularly monitor.

Under the company's unique policy that "products in stock sell," the in-stock shipment rate is treated as a key indicator, and inventories of ¥68,178 million (22.1% of total assets) were recorded in the consolidated balance sheet for FY2025 (ending December 2025). If unexpected sales stagnation continues, inventory valuation losses may occur, potentially affecting the financial position and business results. While the large-scale inventory strategy—holding approximately 620,000 items across 28 distribution centers—is a source of competitive advantage, it also inherently carries the risk of valuation losses in the event of a sharp demand decline.

The core of the company's competitive advantage lies in its immediate delivery system supported by 28 distribution centers and 29 inventory-holding branches nationwide, along with an inventory of approximately 620,000 items. However, if competitors make unexpectedly rapid capital investments and offer highly sophisticated logistics services, there is a risk that the company's market advantage could erode. Intensifying competition in logistics and digital capabilities within the indirect materials wholesale market may undermine existing differentiating factors.

If significant changes occur in manufacturing market demand due to the spread of electric vehicles (EVs) and other factors, leading to industrial structural shifts that force a fundamental review of existing products and supply chains, this could affect the financial position and business results. The indirect materials handled by the company, such as tools and work supplies, are closely related to manufacturing processes, and structural transformation in key customer industries poses a risk of altering the demand structure for the products handled.

The company utilizes advanced digital technology across its overall business operations. If unexpected system downtime, program errors, or disruptions caused by cyberattacks occur and recovery takes time, this could lead to significant opportunity losses. Furthermore, if a leak of personal information or business partner information occurs, this could damage the company's credibility and affect its financial position and business results. The company's high dependence on digital infrastructure—including the management of data for approximately 4.18 million product items and platforms such as "TRUSCO Orange Book.Com"—means that the impact of any system failure could be extensive.

The company develops its private brand "TRUSCO" products (approximately 88,000 items) through OEM production commissioned to domestic and overseas suppliers, with quality control managed primarily by the PB Quality Assurance Department. If a large-scale recall or a product defect resulting in liability for damages occurs, this could undermine the brand's reputation for safety and reliability, damaging the company's credibility and potentially having a material impact on the financial position and business results.

To address natural disasters such as earthquakes and floods, as well as the spread of infectious diseases, the company has implemented measures including seismic-isolation structures for distribution centers and office buildings, maintaining a six-month stock of 118 disaster relief supply items, formulating a business continuity plan (BCP), and introducing a safety confirmation system. However, if unexpected events cause infrastructure outages or damage to business locations, business continuity could become difficult, potentially affecting the financial position and business results. While the distributed placement of 28 distribution centers nationwide contributes to risk diversification, there remains a residual risk that multiple sites could be affected simultaneously in the event of a widespread disaster.

In the consolidated balance sheet for FY2025 (ending December 2025), the equity ratio stood at a high 60.4%, reflecting strong financial soundness and a low reliance on borrowings. However, if repayment capacity declines significantly due to future changes in interest rate trends or a deterioration in business performance, or if additional fund-raising becomes difficult, this could affect the financial position and business results. It should be noted that ongoing investment in fixed assets and inventory under the "ownership-based management" policy creates a structural need for funding.

The company analyzes and discloses climate-related risks and opportunities based on the TCFD framework, and complies with environment-related laws, ordinances, and agreements under its basic policy of "Kindness, for the Future." However, if legal regulations aimed at addressing global warming are strengthened, or if emissions regulations targeting the supply chain are tightened, this could lead to increased response costs and constraints on business activities, potentially affecting the financial position and business results. Given the company's extensive supply chain, spanning 3,729 suppliers domestically and internationally, the scope and burden of regulatory compliance could be substantial.