STG Co., Ltd.

The Group is subject to various environmental regulations concerning waste reduction, air pollution prevention, and hazardous substance treatment, and has positioned environmental management activities as one of its key policies. If unforeseen environmental pollution occurs due to natural disasters or accidents, if contaminants are discovered on factory sites, or if significant costs arise from the enforcement of new environmental regulations, this could have a material impact on the Group's business, operating results, and financial condition. The severity is explicitly stated as "high," making this a risk requiring particular attention.

The Group procures raw materials and supplies products globally, primarily in Asia, and is affected by exchange rate fluctuations when translating the financial statements of overseas subsidiaries into yen. During periods of yen appreciation, yen-translated amounts nominally decrease, and the selling prices of foreign-currency-denominated raw materials and products are also affected. As a countermeasure, the Group is focusing on reducing foreign exchange risk by denominating transactions at each production site in the local currency.

The Group engages in metal parts casting and processing, and may be affected by precision equipment manufacturers' reductions in development budgets, changes in development schedules, and shifts in model-change cycles. Given the Group's high dependence on the precision equipment sector, there is a risk that an economic downturn in this sector or reduced demand due to infectious diseases or similar factors could affect business results. As a risk mitigation measure, the Group is expanding orders from broad-based industries such as the automotive sector and diversifying across multiple customers and fields.

The Group holds fixed assets such as factory buildings and production machinery and equipment, as well as software assets, and regularly evaluates their recoverability based on estimates of future cash flows. If profitability declines due to intensifying competition or other factors, and it is determined that these assets cannot generate sufficient cash flow, recognition of impairment may become necessary. Recording an impairment loss could directly impact business results and financial condition.

Interest-bearing debt (excluding lease obligations) has been on an increasing trend, amounting to ¥2,798 million (42.06% of total liabilities and net assets) as of the end of March 2025 and ¥4,708 million (48.85% of the same) as of the end of March 2026. Liabilities may further increase in line with future expansion of capital expenditures, and if fundraising costs rise due to sudden interest rate fluctuations or changes in the financial environment, capital expenditures and new business initiatives may be constrained. The Group strives to maintain relationships with financial institutions, but if it is unable to raise funds as planned, its business results may be affected.

The Group conducts overseas business primarily in Asia, and is exposed to country-specific risks such as changes in political and economic conditions, changes in tariffs and trade agreements, unforeseen regulatory changes, natural disasters, terrorism, infectious diseases, and rising labor costs. At overseas subsidiaries, differences in social systems within the working environment may create situations where addressing personnel and compensation issues or fraudulent conduct becomes difficult. The Group addresses these risks through monitoring of political and economic conditions, understanding and responding to each country's legal systems, and building a diversified production structure.

The Group positions M&A and strategic business alliances as options in its business strategy for securing manufacturing sites, and the use of proceeds also includes M&A and similar activities. If unforeseen events occur, if post-merger integration (PMI) does not proceed as planned, or if the expected benefits of an M&A are not realized, an impairment loss on goodwill may need to be recorded. The Group's policy is to conduct sufficient prior examination and asset assessment for each individual case to reduce various risk factors.

The Group frequently handles customers' confidential information related to new product development, and recognizes confidentiality management as one of its most important management issues. While comprehensive management from both hardware and software perspectives and regular internal training are conducted, if confidential information is leaked externally due to unforeseen circumstances, this could affect business results and financial condition through decreased orders due to loss of trust and the incurrence of damages compensation costs.

The total number of potential shares from stock options (subscription rights to shares) is 68,000 shares (equivalent to 3.17% of the 2,148,000 total issued shares), and exercise of these options could dilute per-share value. In addition, on June 30, 2025, the Company issued Class A preferred shares with the Development Bank of Japan as the allottee, and if conversion rights to common shares are exercised on or after June 30, 2026, this could also result in dilution of share value. It should be noted that the combination of these two dilution factors could amplify the impact on existing shareholders.

The Group's primary raw materials are magnesium alloy and aluminum alloy, and are subject to market price fluctuations. Price pass-through to selling prices is conducted based on agreements with business partners, but since this occurs with a time lag, rising market prices could adversely affect financial condition and business results. Additionally, procurement of magnesium raw materials is largely limited to Nihon Material Co., Ltd. and OMM (THAILAND) CO., LTD., and if it becomes difficult to continue transactions with these suppliers, temporary disruption may occur.