ASAHI EITO HOLDINGS CO.,LTD.

Affected by global instability and the sharp increase in raw material prices caused by significant yen depreciation, both domestic and overseas businesses have not achieved sufficient profitability or improvement in financial condition, giving rise to circumstances that raise material doubt regarding the going concern assumption. As a countermeasure, the Company has resolved to raise funds through a third-party allotment of new shares and stock acquisition rights with an allotment date of December 8, 2025; however, since this countermeasure is still in progress and the exercise of the stock acquisition rights is not guaranteed to proceed as planned, material uncertainty is recognized at this time. The impact of this material uncertainty regarding the going concern assumption is not reflected in either the consolidated or non-consolidated financial statements.

The housing-related industry is significantly affected by fluctuations in new housing starts and the number of renovation projects, meaning that a deterioration in market conditions directly affects business performance. Intensifying competition with peer companies and the resulting price competition may affect net sales and other performance metrics. High dependence on specific market trends means that a downturn in demand could have a significant negative impact on earnings.

The Group procures products directly or through trading companies from China, South Korea, Taiwan, Thailand, and Vietnam, and expansion of overseas sales is also anticipated; therefore, significant fluctuations in exchange rates may affect business performance. The Group works to mitigate this impact through forward exchange contracts and negotiations with business partners, but in the event of sudden exchange rate fluctuations, such impact may not be fully mitigated. In the current consolidated fiscal year, significant yen depreciation has been a contributing factor to the rise in raw material prices, and this risk has materialized as a real impact.

The Group is dependent on procurement from China, South Korea, Taiwan, Thailand, and Vietnam, and procurement may become difficult due to changes in the political situation or policies of these countries, or changes in the management policies or business environment of suppliers. If diversification of procurement sources and securing of alternative means are insufficient, supply disruptions or increases in procurement costs will directly affect business performance. Amid heightened geopolitical risk, concentration of procurement in specific regions is a factor that increases vulnerability.

Although the Group places the highest priority on quality control, there is no guarantee that product defects will not occur, and if a defect leading to product liability claims occurs, this may result in significant costs and a material impact on corporate reputation. Part of this risk is transferred through product liability insurance, but damages not covered by insurance or reputational damage may affect business performance.

Depending on trends in land prices and the profitability of the relevant fixed assets, impairment losses on fixed assets may occur and affect business performance. Under the current circumstances where improvement in profitability has been delayed, a decline in the profitability of held fixed assets may be a factor that increases impairment risk.

In the event of a natural disaster such as an earthquake, typhoon, or heavy rain, the Group's business locations may suffer significant damage, and damage to sales and supply partners may adversely affect sales and procurement. Under the current situation of consolidating business locations, damage to a specific location could have a greater impact on the entire business.

If a serious fraud, illegal act, or scandal is committed by officers or employees, this may affect business performance due to a loss of social credibility. As the number of group companies increases under the business diversification strategy, establishing a compliance management framework across the entire group has become an important issue.

The Group uses the internet and various networks for business operations and protection of information assets, and is exposed to risks such as cyberattacks and computer viruses. While countermeasures such as employee training, implementation and updating of security software, and enrollment in cyber insurance are in place, business performance may be affected in the event of a cyberattack.

In addition to the core Sanitary Equipment business, the Group is pursuing a business diversification strategy that includes new businesses such as the Reform & Renovation Business, event-based sales of solar power and storage battery equipment, and a rare gas business; these businesses are still in an early stage where their contribution to earnings remains uncertain. The Group is also expanding into new businesses through M&A (Corporate Acquisition), and if synergies with acquired companies do not materialize as planned, there is a risk that improvement in overall group profitability and financial condition will be delayed. Since progress on countermeasures is directly linked to resolving the uncertainty regarding the going concern assumption, the significance of this execution risk is high.