Shinto Holdings Inc.

The Group has positioned the expansion of overseas business as a pillar of its management strategy, and the proportion of overseas business in its results continues to increase. The Group is exposed to a variety of risks including political and economic conditions in each region, exchange rate movements, legal regulations, differences in business customs, social unrest, and pandemics. Should any of these risks materialize, they could adversely affect the Group's operating results and financial condition. The annual securities report does not describe specific countermeasures, and the effectiveness of risk management could become an issue.

The Group imports some recycling materials, such as plastics and non-ferrous metals, from Chinese manufacturers, and changes in the domestic environment in China as well as fluctuations in exchange rates directly affect costs. A substantial portion of export and overseas business transactions are conducted in foreign currencies such as the US dollar and the Chinese yuan, and exchange rate fluctuations affect competitiveness. This may also spill over into domestic business results through changes in the cost competitiveness of competing overseas products.

Raw materials and products handled by the Group are expected to continue to face severe price competition going forward due to factors such as the entry of overseas companies into the domestic market, the influx of imported goods resulting from tariff reductions, and the rise of domestic competitors. Although the Group is working to reduce costs, if it is unable to overcome price competition, this could affect its operating results and financial condition.

With respect to plastic raw materials, there are multiple compounded risks, including intensifying international competition for procurement, raw material supply shortages due to climate change, price surges caused by market fluctuations, and declining demand for plastic packaging materials due to stricter environmental regulations. In addition, since prices of ferrous and non-ferrous metal scrap are heavily influenced by the market supply-demand balance, if price fluctuations exceed expectations, excess inventory could arise, leading to deteriorating profitability. The Group seeks to reduce this risk through diversified investment across various metals, but complete avoidance is difficult.

The Group aims to shift from a loss-making structure to a profitable one, and is working to expand the range of products handled centered on the Trading Business and strengthen its sales capabilities; however, the Group recorded an operating loss in the fiscal year under review as well. Although the Group seeks to improve profitability through enhancing the profitability of the waste metal recycling business and leveraging plastic processing technology, if the improvement in the business structure is delayed or the plastics business fails to achieve its plans, this could further adversely affect the Group's operating results and financial condition.

The Group currently has two ongoing lawsuits related to a past industrial accident and damages claims filed by customers and business partners. Depending on how these lawsuits proceed, the Group's business results could be affected through the payment of damages or reputational damage, among other factors. The annual securities report does not disclose detailed information on the amounts claimed or the progress of these lawsuits, making it difficult to quantitatively assess the risk.

In the Trading Business, there are frequent cases in which an amount equivalent to the purchase price is advanced to suppliers at the same time as a sales order is received. If a supplier becomes insolvent, this creates the risk of being unable to receive the goods or recover the advance payment. As a countermeasure, the Group seeks to regularly obtain credit information on suppliers and build a management framework enabling continuous contact and visits, but the effectiveness of this credit management is directly linked to the stability of business results.

Since the results of consolidated subsidiaries are directly reflected in the consolidated financial statements, the management condition of subsidiaries has a structurally significant impact on the parent company's financial position. If a sudden change in the external environment surrounding a subsidiary undermines the assumptions underlying its management strategy, or if risks materialize due to deficiencies in a subsidiary's management control framework, this could adversely affect the results of the Group as a whole.