SANYU CO.,LTD.

The principal end users of the Group's core products, Polished Steel Bars and Cold Forging Steel Wire, are in the automobile-related industry. There is concern that domestic demand may contract due to demand fluctuations arising from U.S. tariff policy and similar factors, as well as automakers' shift of production overseas and increased overseas procurement. If drastic changes in overseas economies or foreign exchange rates cause significant fluctuations in the activity levels and procurement policies of the automobile industry, this could have a material impact on the Group's business performance. As countermeasures, the Group is strengthening its sales capabilities toward vehicle body manufacturers and parts vendors, and is considering establishing overseas bases as needed.

Significant fluctuations in raw material prices for steel are reflected in the steel prices set by steel manufacturers, directly affecting the Group's cost of sales. If price increases cannot be sufficiently passed on to customers, or if products and materials with high inventory book values continue to be shipped out during price declines, profit margins will decline in either case, affecting business performance. As a countermeasure, the Group is focusing on passing on cost increases through detailed, close sales activities with customers.

Triggered by soaring energy costs, if electricity charges, auxiliary material costs, labor costs due to wage increases, and outsourcing costs including logistics rise, this could affect the Group's business performance. The Group is working to reduce costs through cost reduction measures such as JK activities and optimized production within the Group, while also addressing revisions to processing fees.

The Group's sales base is mainly in the Kansai region and areas further west, where 17 competing companies exist in the Polished Steel Bars and Cold Forging Steel Wire business. If competition intensifies during an economic downturn, downward pressure on selling prices or the loss of customers could affect business performance. As countermeasures, the Group is working to strengthen information exchange with partner companies, develop new business partners, and secure market share through M&A and other means.

Since retirement benefit obligations are calculated based on the amount payable upon voluntary retirement at fiscal year-end and the fair value of pension assets, among other factors, deterioration in the investment yield of pension assets could increase retirement benefit expenses and affect business performance. As a countermeasure, the Group manages assets using risk-control-type balanced funds in order to mitigate the impact of deteriorating investment yields.

The Group considers the recruitment and development of excellent personnel to be one of its most important priorities. However, if educational initiatives and external training support programs do not function effectively and the Group is unable to secure and develop the necessary personnel as planned, this could affect business performance. As countermeasures, the Group conducts in-house training sessions by outside instructors and actively provides external training, and operates a personnel evaluation system based fundamentally on merit.

Although the Group has established quality control and quality assurance systems, including ISO9001:2015 certification, if damages arise attributable to the Group's products, this could affect business performance through liability compensation or loss of customer trust. As countermeasures, the Group works to reduce the risk of product-related trouble by developing and properly operating work manuals, and reduces potential damages by maintaining product liability insurance.

If a major earthquake occurs with its epicenter in the Kansai region or areas further west, this could have a material impact on business performance due to human casualties and the interruption of production activities resulting from the collapse of manufacturing facilities. As countermeasures, the Group conducts regular inspections of all production facilities and seismic reinforcement work, has established a system to promptly set up and operate an emergency response headquarters after a disaster occurs, and conducts evacuation drills once a year.

If indications of impairment arise for owned fixed assets, such as continued negative operating income, and it is determined that the total future cash flows will fall below the book value, an impairment loss will occur, potentially affecting consolidated business results. Since the recognition of impairment is determined based on estimates of future recoverability, this inherently carries the risk that a deterioration in the business environment will directly impact financial figures.