SUMINOE Co., Ltd.

The Group produces and sells carpets, wallpaper, automotive interior materials, deodorizing products, and other items both domestically and overseas, and is directly affected by political turmoil or severe economic downturns at production sites and in major markets. Sluggish consumption could lead to increased inventory, decreased sales volume, and impairment of fixed assets. This is recognized as a risk that could materially affect the Group's overall operating results and financial condition.

The Group uses a wide variety of raw materials in its product manufacturing, and their prices are constantly fluctuating due to market conditions. A surge in raw material prices leads to rising costs, and if passing this on to product prices proves difficult or delayed, profitability will be significantly squeezed. The Group strives for stable procurement and appropriate purchase prices through basic transaction agreements with suppliers, but the risk cannot be entirely eliminated.

The Group has affiliated companies in seven countries: the United States, China, Thailand, Indonesia, India, Mexico, and Vietnam, and positions active investment in overseas markets as an important strategy. Various regulations and economic, social, and political risks in each country may prevent investments and business expansion from proceeding as planned. The Group maintains close information sharing with overseas subsidiary managers and strives to understand local conditions, but complete elimination of the risk is difficult.

The Group, which operates globally, is significantly affected by exchange rate fluctuations in its business activities, including import and export transactions denominated in foreign currencies. Although risk mitigation measures such as forward exchange contracts are implemented, it is impossible to eliminate all risks, and significant exchange rate fluctuations may materially affect operating results and financial condition.

The Group holds a substantial amount of marketable securities, and if stock prices fall significantly due to changes in domestic and overseas conditions, valuation losses or losses on sale of securities may occur, materially affecting operating results and financial condition. The Group regularly verifies the rationality of holding these shares from both quantitative and qualitative perspectives and reviews the number of shares held.

Although the Group thoroughly confirms safety and quality, if a serious defect or quality issue occurs in a product due to unforeseeable causes, substantial compensation and damages costs may arise, along with a loss of social credibility. Under the "Second Environmental Action Declaration - Based on the Theme of KKR+A -," the Group aims to provide comfortable and environmentally friendly products and services, but complete elimination of the risk is difficult.

The Group manages a large amount of confidential information, including personal information, through its business activities, and if an information leak occurs, it may result in damage to social credibility and liability for damages. In response to the recent increase in cyberattacks, the Group implements measures such as targeted email training, introduction of hacking detection and prevention functions, and continuous monitoring by external contractors. Furthermore, the Group is promoting company-wide security enhancement and the establishment of an incident response system based on external risk assessments.

Due to the rapid advancement of information technology and globalization, there is a possibility that the Group's proprietary technology and know-how may leak to outside parties, and the manufacture of similar products may not be completely prevented. In addition, if the Group's development results are deemed to infringe on the intellectual property rights of other companies, this may result in decreased sales and payment of damages, materially affecting operating results and financial condition. The Group strives to protect and utilize intellectual property rights and prevent infringement of third-party rights through regular education and awareness activities within the Group.

The Group, which has production sites both domestically and overseas, may experience a temporary suspension of operations or delays in production and shipment if production facilities are damaged by natural disasters such as large-scale earthquakes, typhoons, and floods, or by sudden accidents such as fires. Restoring buildings and equipment could incur substantial costs, posing a risk of materially affecting operating results and financial condition. The Group has formulated a BCP action plan and strives to establish a system for emergencies.

If an important business partner goes bankrupt due to an economic downturn or other factors, or if unexpected bad debt occurs due to credit concerns regarding a business partner, bad debt losses may significantly exceed the recorded allowance for doubtful accounts, materially affecting operating results and financial condition. The Group manages this risk by setting credit limits for each business partner based on credit management regulations and by exercising close attention to transactions throughout the contract fulfillment process.