SHINTO COMPANY LIMITED

Since clay tiles are used in large quantities during new housing construction, increases and decreases in new housing construction starts directly affect business performance. Demand is influenced by complex external factors such as economic trends, interest rates, residential land prices, government housing policy, tax systems, and the declining birthrate, and fluctuations in these factors may have a material impact on sales. As a countermeasure, the Company is strengthening information sharing with customers and enhancing its system for collecting and analyzing market information.

Module tiles are adopted as dedicated tiles for major housebuilders, resulting in a high degree of dependence on specific sales customers. If such housebuilders make significant changes to housing styles or roofing specifications, or if other companies introduce similar products into the market in large volumes, this could have a material impact on business performance. As a countermeasure, the Company is promoting diversification of sales destinations through development of new customers and expanded sales to existing customers.

Clay and glaze, the main raw materials for clay tiles, are, as an industry practice, procured from a limited number of specific suppliers. Since the blending ratio of clay affects the manufacturing process and glaze requires stable color tone and quality, alternative procurement is difficult, and deterioration in a supplier's business condition could disrupt manufacturing and affect business performance. As a countermeasure, the Company is strengthening information sharing and building cooperative relationships with major suppliers and their supply sources.

Liquefied petroleum gas and heavy fuel oil are used as fuel in the manufacturing process, so fluctuations in crude oil prices directly affect costs. There is a risk that crude oil prices could fluctuate sharply due to supply-demand trends in emerging countries such as China and India, the situation in the Middle East, economic conditions in the United States and the Eurozone, exchange rates, and the activities of speculative funds. As a countermeasure, the Company is diversifying its purchasing sources by utilizing multiple suppliers and improving the accuracy of price forecasts through information sharing with suppliers.

The Company operates its factories in accordance with legal regulations such as the Air Pollution Control Act, the Water Pollution Prevention Act, the Noise Regulation Act, the Vibration Regulation Act, and the Waste Management Act, and has submitted pollution prevention plans to the Mayor of Hekinan City for the Konan Plant and the Akashi Center. Amendments to laws or the establishment of new regulations could disrupt factory operations and affect business performance. As a countermeasure, the Company conducts regular legal and regulatory training for employees to promote the acquisition of appropriate knowledge.

Module tiles have been adopted by major housebuilders in recognition of the Company's manufacturing technology, quality, workability, and technology for improving working environments; however, if other companies produce and introduce similar products into the market in large volumes in disregard of the Company's patent rights and other intellectual property, this could worsen the competitive environment and affect business performance. As a countermeasure, the Company is strengthening its sales base through development of new customers and expanded sales to existing customers.