CORONA CORPORATION

Sales of Heating Equipment (27.3% of sales composition) are concentrated in the third quarter, and for FY2026 (ending March 2026), quarterly sales are projected at ¥29,028 million in the third quarter versus only ¥16,090 million in the fourth quarter. There is a risk that sales of Heating Equipment and Air Conditioning & Home Appliances may fluctuate due to climate and temperature effects, potentially undermining the stability of business performance. As a countermeasure, the Group is working to level out seasonal fluctuations by increasing the proportion of Housing Equipment (49.6% of sales composition).

A sharp rise in the price of kerosene, the fuel used in oil heaters and oil water heaters, may discourage purchases of kerosene-based products or accelerate conversion to alternative heat sources, potentially adversely affecting the sales volume of the Group. Since kerosene prices are linked to crude oil prices and are affected by production trends among oil-producing countries, international conflicts, exchange rates, and other factors, it is recognized that the likelihood of this risk materializing has increased compared to before. The Group continuously monitors market conditions and changes in consumer needs through its marketing activities.

If government regulations aimed at realizing a decarbonized society are further strengthened, the manufacture and sale of oil combustion equipment, one of the Group's core businesses, may be subject to regulation in the future, which could have a material impact on its business, performance, and financial condition. Since the Group's core businesses include the manufacture and sale of oil combustion equipment, it is directly exposed to the impact of tightened regulations. The Group is addressing this by promoting the development of products that utilize renewable energy and products with high energy efficiency, as well as by setting greenhouse gas emissions reduction targets.

Heating Equipment operates in a mature market where price competition continues, while Air Conditioning & Home Appliances faces increasingly intense price competition from multinational companies, and Housing Equipment continues to face a severe competitive environment influenced by new housing starts and energy policy. Significant changes in the competitive landscape, market size, or consumer needs could affect the Group's business, performance, and financial condition, and it is recognized that the likelihood of this risk materializing will remain constant into the next fiscal year as well. The Group is addressing this through research and development of high-value-added products, cost reduction, and differentiation of sales channel strategies.

If unexpected product defects result in quality complaints, large-scale recalls, or product liability claims, this could affect the Group's business, performance, and financial condition. Although the Group has product liability insurance, there remains a risk that large-scale recalls or damages could exceed insurance coverage. The Group strives to maintain high quality standards through thorough product quality control based on quality assurance regulations and safety-conscious product development.

Prices of raw materials and parts fluctuate due to economic trends, supply-demand balance, exchange rate movements, and other factors, and rising procurement costs could affect the Group's business, performance, and financial condition. Some parts are sourced from a limited number of suppliers, creating a risk of delayed delivery due to natural disasters, infectious disease outbreaks, or deteriorating business conditions at suppliers, and it is recognized that procurement risk has increased compared to before. The Group is implementing risk avoidance measures such as planned procurement of raw materials, review of material specifications, expansion of suppliers, and consideration of alternative materials.

All of the Group's production bases (the Company's 3 plants and its subsidiaries' 5 plants) are concentrated within Niigata Prefecture, and a large-scale disaster affecting the entire prefecture could significantly reduce production capacity. Given the increasing tendency toward more severe natural disasters caused by climate change, it is recognized that the likelihood of this risk materializing will remain constant into the next fiscal year as well. The Group aims to minimize the impact through dispersing plants across various regions within the prefecture, establishing five distribution centers nationwide, and formulating and continuously reviewing its business continuity plan (BCP).

If an unknown infectious disease spreads globally, this could cause delays in parts delivery from component manufacturers, disruption of logistics networks, and significant impact on human resources, potentially affecting the Group's business, performance, and financial condition. The Group thoroughly implements infection prevention measures in line with guidelines from the government and relevant authorities, and carries out measures to curb infection such as web conferencing, staggered work hours, and remote work, while maintaining a system to hold infectious disease response meetings and swiftly determine company-wide policies when the spread of infection is anticipated.

If cyberattacks, virus infections, or similar incidents result in the destruction, tampering, or leakage of customer personal information or confidential business and technical information, this could affect the Group's business, performance, and financial condition, and it is recognized that the likelihood of this risk materializing has increased due to the growing sophistication and complexity of cyberattacks. In addition to formulating an information security policy and establishing internal regulations, the Group continuously promotes multi-layered measures combining technical countermeasures such as antivirus protection and vulnerability management with human-based measures such as employee training and education.

The Group invests its funds in domestic and foreign bonds and other instruments, and exchange rate risk, interest rate risk, credit risk, and other factors could affect its business, performance, and financial condition; since this is affected by domestic and international economic and financial conditions, it is recognized that the likelihood of this risk materializing will remain constant into the next fiscal year as well. The Group complies with fund management regulations that set investment limits, risk tolerance ranges, and criteria for sale decisions, as resolved by the Board of Directors, and for foreign bonds, it also seeks to mitigate exchange rate fluctuation risk based on the basic policy of risk diversification and stable management.