SANKO TECHNO CO., LTD.

Since the majority of net sales come from the wholesale distribution business of construction-related products, trends in the construction industry and sudden changes in capital expenditure directly affect business performance. If the wholesalers and dealers that are the Group's main sales customers experience deteriorating performance, this may impact the Group's sales and earnings. This is recognized as a structural risk arising from high dependence on a specific industry.

Prices of steel (carbon steel and stainless steel), the main raw material, may rise due to surges in iron ore and nickel prices. Although the Company has a policy of passing on cost increases to selling prices, if such pass-through is insufficient, earnings will be squeezed. In addition, performance may also be affected if the Company fails to adequately address the shortage of skilled construction workers and rising construction material and labor costs.

Although quality control systems have been established at core business sites through ISO9001 or ISO14001 certification, the possibility of product defects arising from unforeseen events cannot be ruled out. While the Company carries product liability insurance, if substantial costs arise from recalls or similar events, this may impact business performance. As the Company handles products such as Post-installed Anchors that are directly related to safety, quality issues could also affect trust and reliability.

While the Company works on safety management through education for construction supervisors and safety patrols, if a serious occupational accident occurs, there is a risk of receiving a suspension of qualified bidder status from the client. Such suspension directly leads to the loss of order opportunities and may have a significant impact on business performance. Given the nature of the business, which involves providing construction services at construction sites, this risk exists on an ongoing basis.

Some Post-installed Anchors are manufactured at the Thai subsidiary SANKO FASTEM (THAILAND) LTD., while micro screws and shaft components for electronic devices and automobiles are manufactured at the Thai sub-subsidiary KOHBYO (THAILAND) CO., LTD. If changes in local laws and regulations, political or economic factors, natural disasters, or other events occur, this may disrupt the production system and supply capacity, thereby affecting business performance. Concentration of production in Thailand could lead to vulnerabilities in the supply chain.

Since the majority of sales customers are small and medium-sized wholesalers and dealers, there is a risk of failure to collect accounts receivable due to customer bankruptcies, regardless of economic conditions. Although the cash collection rate is high and customer concentration is said not to have occurred, if the number of customers with deteriorating creditworthiness increases, this may impact business performance. Continued strengthening of credit management is required.

The Company strives to protect its rights by registering intellectual property such as patents for new products and construction methods, but there is a possibility that the Group's rights may be infringed both domestically and overseas. In addition, if the Group unknowingly infringes on third-party intellectual property and is subject to claims for damages or compensation, this may impact business performance. As business expansion, including overseas expansion, progresses, the scope of intellectual property risk management is also expanding.

The core business is subject to legal regulations such as the Construction Business Act, the Building Standards Act, the National Land Use Planning Act, and the City Planning Act. Against the backdrop of frequent natural disasters in recent years and the need to address the aging of concrete structures, if these laws are amended or abolished, or if new regulations or applicable standards are changed, business activities may be constrained, affecting business performance. Prompt response to changes in the regulatory environment is required.

If a large-scale earthquake or other natural disaster occurs at major plants located in Chiba, Shizuoka, and Nara Prefectures, as well as at other domestic and overseas business sites, significant disruption to the production system and sales activities may result. The outbreak of unknown infectious diseases could also seriously affect raw material procurement, maintenance of production, stable supply, and the supply chain. The Company continues to implement risk mitigation measures leveraging experience gained in infection prevention during the COVID-19 pandemic.