SALA CORPORATION

Risks of demand decline exist across all six business segments of the Group, including declines in gas sales volume, housing units sold, and imported automobile sales, driven by economic trends, population decline, and the spread of energy-saving practices. In particular, in the Energy & Solutions business, the decline in Japan's domestic population and number of households is a structural factor causing lower sales volume. As countermeasures, under the 6th Medium-Term Management Plan, the Group is promoting expansion of its customer base through M&A, introduction of carbon-free electricity and carbon-offset gas, and development of new demand in each business.

Procurement of city gas, LP gas, and biomass fuel (palm kernel shell) depends on imports, and fluctuations in crude oil prices and foreign exchange rates may affect business performance. In addition, in the Engineering & Maintenance business and Housing business, significant increases in labor and material costs after conclusion of construction contracts could lead to increased construction costs. As countermeasures, the Group utilizes the fuel cost adjustment system, diversifies procurement sources, uses long-term foreign exchange forward contracts, and conducts early procurement and monitoring of materials.

The core Energy & Solutions business has seasonal characteristics whereby gas sales volume and revenue increase in winter and decrease in summer, resulting in a revenue structure where Group profits are concentrated in the first half of the fiscal year. If mild winters continue, the Group may be unable to secure earnings as planned. As a countermeasure, the Group is working to resolve this seasonal concentration by focusing on growth areas outside of energy, such as the Reform business and the Business Total Solutions business.

There are risks including declines in gas sales prices and significant decreases in customer numbers due to new entrants in the Energy & Solutions business, intensifying competition due to strengthened product capabilities of major house makers in the Housing business, and intensifying share competition due to mergers and business alliances among other companies in the Animal Healthcare business. As countermeasures, the Group is strengthening customer relationships through the promotion of bundled transactions, unifying the Group brand, and developing differentiated proposals centered on carbon-neutral initiatives.

Against the backdrop of the trend toward a decarbonized society since the adoption of the Paris Agreement, the introduction of new environment-related laws and regulations or additional obligations could increase response costs and affect business performance. There is also a risk that abnormal weather events such as heat waves, mild winters, and droughts could significantly affect city gas and LP gas sales volumes through changes in temperature and water temperature. As countermeasures, the Group is providing energy-saving diagnostic services, expanding the supply of carbon-offset gas and renewable energy electricity, and promoting initiatives such as the commencement of operations of a grid-connected storage battery facility and a renewable-energy-paired storage battery facility in October 2025.

Eastern Aichi Prefecture and western Shizuoka Prefecture, where the Group's management resources are concentrated, are expected to experience a future Nankai Trough earthquake. If a large-scale earthquake or wind/flood damage occurs, extensive damage to business sites, manufacturing and supply facilities, and officers and employees could seriously impede business continuity. As countermeasures, the Group continues to formulate BCPs and conduct emergency response drills, apply seismic designs equivalent to the Great East Japan Earthquake standard for critical facilities such as gas holders, plan the systematic replacement of pipes with polyethylene pipes (targeting 100% seismic resistance by 2030), and deploy emergency power sources.

Cyberattacks such as unauthorized access or ransomware attacks, or intentional or negligent acts by officers and employees, could result in leakage of personal or confidential information or information system failures, which could damage social trust and brand image and result in damages and response costs affecting business performance. As countermeasures, the Group continues to introduce cyberattack prevention and detection solutions, establish a C-SIRT, formulate and conduct drills for emergency response plans, and review the content of cyber insurance contracts.

In the Car Life Support business, if the contract with the main supplier, Volkswagen Group Japan K.K., cannot be continued, business continuity may be affected. In addition, in the Engineering & Maintenance business and Housing business, there is a risk of construction delays and increased costs due to the suspension of business by subcontracted construction companies. As countermeasures, the Group is diversifying business partners, conducting regular credit management, maintaining good relations through close information exchange with Volkswagen Group Japan, and developing new construction contractors.

Due to the decline in the working-age population caused by population decline and the falling birthrate combined with an aging society, if the Group is unable to secure human resources as planned, or if it fails to sufficiently develop a labor environment that gives consideration to diversity, this could result in a labor shortage that undermines business competitiveness and impedes sustainable growth. As countermeasures, the Group is promoting new graduate and career hiring based on its human resource portfolio, conducting hierarchical training and next-generation leader development centered on the Sarah Manabi Kyoso Center, and developing diverse working arrangements including support for balancing childcare and caregiving with work.

After establishing subsidiaries and affiliated companies or conducting business alliances and acquisitions, if investment returns are not appropriately achieved or expected earnings are not obtained due to changes in economic conditions, or if the value of held investment securities, tangible fixed assets, goodwill, etc. significantly declines, valuation losses or impairment charges could affect business performance. As countermeasures, the Group conducts quantitative evaluation of investment projects (comparing invested capital yield and expected rate of return), requires board deliberation for projects above a certain amount, conducts periodic performance evaluation after investment, and appropriately sells investment securities of low strategic significance.