Sumiseki Holdings,Inc.

Various credit risks arise from diverse commodity transaction activities with business partners both in Japan and overseas. Each business monitors credit limits and receivables status on a regular basis from both quantitative and qualitative perspectives, and a department independent from each business division reviews the status of collections and delinquent receivables. However, if the creditworthiness of a business partner deteriorates, this may affect the financial position and operating results of the Group.

The Group raises funds mainly through bank borrowings and is therefore exposed to interest rate fluctuation risk. If the increase in costs due to rising interest rates cannot be absorbed through business activities, this may adversely affect operating results. The securities report does not describe any specific hedging measures, indicating a structure with high sensitivity to changes in the interest rate environment.

Sumiseki Materials Co., Ltd., a consolidated subsidiary, holds Class B shares of Wambo Coal Pty Ltd in Australia, and the business conditions of Peabody Energy of the United States and other companies operating Wambo may affect the Group's financial position and operating results. As the Group is not in a position to be directly involved in the operation of Wambo, there is a structure in which Peabody's management decisions and any deterioration in its business performance can indirectly spread as risk.

The Group examines the asset value of the fixed assets it holds based on market value and earning value; however, if the asset value declines due to future declines in market value, reduced profitability, or changes in holding policy, this may affect the financial position and operating results of the Group. If an impairment loss is recognized, there is a risk of a direct impact on net income for the period and net assets.

The coal business of Sumiseki Trading Co., Ltd., a consolidated subsidiary, may be affected by trends in international resource markets such as crude oil and natural gas, as well as by significant unforeseen changes in the political and economic environment or legal amendments in Australia and Indonesia, which are major supply sources. Since fluctuations in resource market conditions directly affect coal procurement costs and selling prices, this business area carries a high risk to earnings stability.