KAGA ELECTRONICS CO.,LTD.

With regard to the Group’s business, etc., major risks that the Group recognizes as potentially having a significant impact on its operating performance, share price, finances, etc. are as follows.
Furthermore, forward-looking statements contained in this document are based on conclusions that have been made by the Group as of the end of the fiscal year under review (the fiscal year ended March 31, 2022).

The Group's primary business, electronic components business (which involves the development, manufacturing, sale, etc. of semiconductors, general electronic components, EMS, and other related products), is influenced by the economic conditions of the countries and regions where we operate. Therefore, fluctuations in the economies of major markets, such as Japan, North America, Europe, and Asia, along with the resulting expansion or contraction of demand, could impact the Group's operating results and financial condition.

The Group’s operations involve product sales and manufacturing overseas. Sales, expenses, assets and other amounts denominated in local currencies in respective geographic regions as presented in the consolidated financial statements are converted to Japanese yen. Depending on the exchange rate at the time of conversion, such amounts could be adversely affected upon their conversion by volatility in exchange rates, despite the amounts remaining unchanged in the local currency.
We conduct currency hedging transactions particularly by means of forward exchange contracts in order to reduce risk of exchange rate volatility, and otherwise endeavor to minimize any effects of exchange rate volatility between major currencies such as the USD, EUR, GBP, CNY and JPY. However, the Group’s operating results and financial standing could be adversely affected by the timing of such forward exchange contracts and any sudden fluctuations in exchange rates.

The Group conducts a significant volume of international transactions, including EMS and other electronic component sales, and operates sales and manufacturing sites worldwide. Local factors such as changes in laws or regulations due to political factors, rapid inflation or defaults due to economic factors, acts of terrorism or war resulting from worsening social conditions, natural disasters like earthquakes, typhoons, or floods, and the spread of infectious diseases could impact the Group's operating results and financial condition.

The Group partners with over 2,000 domestic and international manufacturers and trading companies, enabling us to procure a wide variety of products ranging from electronic components and electronic devices like semiconductors to personal computers and peripherals, consumer electronics, communications equipment, and even toys. However, changes in supplier agency policies, supplier mergers or consolidations that result in changes to commercial rights, or long-term factory shutdowns due to natural disasters, pandemics, or geopolitical risks in regions where our suppliers' factories are located could impact our operating results. Furthermore, the market for the electronics-related products that the Group handles (including general electronic components, EMS, semiconductors, and products related to information devices) is highly competitive. It is also characterized by rapid technological innovation, changing customer needs, and the frequent entry of new products, and we face competition from numerous manufacturers and trading companies both domestically and internationally. The Group addresses intensifying price competition and the increasing number of new entrants by differentiating itself through specialized services for specific industries and operations. However, if we are unable to compete effectively on price, products, technology, or otherwise, the Group's operating results and financial condition could be impacted.

The Group is engaged in the development, manufacture, and sale of electronics. Although going forward we aim to expand our business by developing new products and technologies, such efforts entail risk as follows.

(i) Risks associated with product supply responsibilities
(ii) Risk involving warranties with respect to defective products
(iii) Investment risk incurred with respect to funds and resources for new products and technologies
(iv) Risk of lacking an adequate ability to address the rapid pace of technological innovation
(v) Reputational risk

In addition to the above risks, if the Group cannot sufficiently predict changes in the industry and market, leading to an inability to develop appealing products, this could reduce future growth and profitability, potentially impacting the Group's operating results and financial condition.

The Group operates businesses globally, and is subject to various laws and regulations outside Japan, as well as Japanese laws such as the Companies Act, tax laws, the Financial Instruments and Exchange Act, the Antimonopoly Act, labor laws, the Intellectual Property Basic Act, and environmental regulations. If the Group violates any laws or regulations, its operating results and financial condition could be impacted. Furthermore, any misconduct by employees could affect the Group's operating results and social credibility, depending on the nature of the misconduct.

The Group holds shares in financial institutions and companies involved in procurement, sales, and other activities, which exposes it to stock market risk. Because the Group does not utilize special hedging instruments for these risks, fluctuations in stock prices could impact its financial condition.

The Group faces the risk of being subject to lawsuits, disputes, and other legal proceedings related to its domestic and international business operations. These legal risks are centrally managed by the Group's legal department. Furthermore, there is a management system in place for reporting to the Board of Directors and the Audit and Supervisory Committee as necessary. Although no lawsuits that would significantly affect the Group's business were filed in the consolidated fiscal year under review, if important lawsuits or other proceedings are initiated in the future, they could impact the Group's operating results and financial condition.

The Group maintains a personal information management system to prevent the leakage of personal information, as stipulated by the Personal Information Protection Act. However, the environment surrounding personal information in today's information-driven society is diversifying, and should an unforeseen event lead to a personal information leak, it could diminish the Group's social credibility and impact its operating results and financial condition.

The Group considers M&A to be a means of expanding operations. When conducting M&A, although we conduct detailed due diligence, etc., with regard to the finances and contractual relationships of the target company in order to avoid purchasing risks to the extent possible, the Group's results and financial status may be impacted if the target company is unable to generate the profits expected when calculating value or if contingent liabilities that could not be detected at the time of the M&A or unforeseen liabilities, etc., manifest.

The Group engages in procurement and sales through import and export trade. To ensure that trade transactions comply with the national security and trade-related laws and regulations of various countries, it is necessary to scrutinize each transaction. This scrutiny not only covers customers, suppliers, and trade partners, but also the goods being shipped, their destinations, shipping methods, and trade finance documents, etc. Furthermore, U.S. export regulations, such as re-export controls, have extra-territorial effects that also require close examination. Should any laws or regulations be violated, our business activities could be restricted, potentially leading to a decline in the Group's social credibility, as well as impacting its operating results and financial condition.

If an unforeseen accident or harm occurs to a business partner due to a defect in a product or service provided by the Group, we could incur legal liability (such as for damages). As a countermeasure, we endeavor to implement risk avoidance measures, such as exchanging product specifications with suppliers and customers, confirming compliance with legal regulations and safety standards, and taking out various types of non-life insurance. Nevertheless, if a serious issue were to occur, it could impact the Group's operating results and financial condition.

The electronics industry, in which the Group operates, is characterized by intense competition, rapid technological innovation, changing customer needs, and the frequent introduction of new products. To continue providing value to our numerous customers both domestically and internationally, the recruitment and development of outstanding human resources is essential. In recent years, competition in securing talented human resources has intensified. The Group is committed to legal compliance, abiding by limits on overtime work and ensuring that mandatory annual paid leave is taken. We are also nurturing a workplace environment in which diverse talent can work safely and healthily, both mentally and physically, and have established human resource systems and training programs that allow individuals to give full play to their abilities, all while developing personnel willing to embrace the challenge of delivering innovation. However, should any legal violations occur, or if we are unable to secure or develop the human resources we need, the Group's operating results and financial condition could be impacted.

The Group comprises a multitude of Group companies both in Japan and overseas, and we recognize the importance of strengthening Group governance. We operate and maintain an internal control system, including internal controls over financial reporting, in accordance with our “Basic approach to internal control systems and status of establishment.” However, there is a risk that improvements to the system may not be implemented swiftly enough to address new risks arising from an increase in Group companies due to new M&A transactions or changes in the external environment. If the system does not function properly, false statements in securities reports due to fraud or misconduct, or a loss of trust from business partners or claims for damages due to compliance violations, could impact the Group's operating results and financial condition.

The Group handles various types of confidential information from its business partners. To mitigate risks such as leaks, alteration, or loss of confidential information, service interruptions, or unauthorized access due to cyberattacks or human error, we have established Group-wide information security guidelines. We also visualize the Group's overall response status and implement continuous improvements. We also strive to reduce risk by deploying cutting-edge cybersecurity products and periodically providing information security training to employees. Furthermore, we have determined cyberattack response procedures and established a system to respond quickly in the event of an incident. Through these measures, the Group aims to strengthen its preparedness against information security risks and maintain the trust of its client companies. However, despite these efforts, should an information leak or similar incident occur, it could lead to claims for damages, a loss of social credibility, or the departure of business partners, any of which could impact the Group's operating results and financial condition.