SANYO INDUSTRIES, LTD.

With the progression of the declining birthrate, aging population, and population decline, new demand for construction hardware and materials for buildings and residences may gradually shrink, potentially intensifying sales competition. This could adversely affect the Group's business results and financial condition. As a countermeasure, in addition to cost reduction, the Group is engaged in developing growth strategy products with key concepts of "safety and security," "environment and energy conservation," and "earthquake resistance and disaster prevention."

The market prices of steel and aluminum, the Group's main materials, are affected by global economic conditions, geopolitical risks, supply-demand balance, and exchange rate fluctuations, and a sharp rise in prices could adversely affect business results. As a countermeasure, the Group implements measures to reduce costs and pass on price increases to selling prices, while also regularly monitoring raw material price trends and diversifying risk through the development of new suppliers.

Although the Group, as a comprehensive metal building materials manufacturer, takes thorough care in quality control, the occurrence of product liability lawsuits or serious construction defects could adversely affect business results. As a countermeasure, the Group has established the "Quality and Safety Management Regulations" to build a system for preventive measures and swift response and recurrence prevention in the event of an accident.

In construction contracts, changes in contract amounts due to changes in construction content and fluctuations in raw material prices may affect revenue recognition, creating a risk of unprofitable construction projects arising from additional costs. As a countermeasure, the Group manages construction progress through monthly meetings and manages income and expenses by construction unit, estimating total construction costs based on the latest information.

As most business partners in the nationwide sales network are related to construction, a decline in construction demand leading to bankruptcies among business partners could result in actual bad debts significantly exceeding the allowance for doubtful accounts, resulting in an insufficient allowance. As a countermeasure, the Group sets and manages credit limits for each business partner based on the "Credit Management Regulations" and implements measures to secure receivables when creditworthiness deteriorates.

For held assets such as business and rental real estate and securities, changes in the business environment may render the book value unrecoverable or cause significant fluctuations in market value, potentially necessitating impairment treatment. As a countermeasure, the Group regularly surveys the market value of held land and reports to the Board of Directors, while also building a system to take timely measures upon detecting signs of fixed asset impairment at subsidiaries.

Assets and liabilities related to retirement benefits may increase in retirement benefit obligations and pension costs due to changes in actuarial assumptions or a decrease in pension assets caused by deterioration in the investment environment. As a countermeasure, the Pension Asset Management Committee, chaired by the General Manager of the General Affairs Department, meets quarterly to receive reports from the investment trustee institutions and discuss and deliberate on reviewing the policy asset allocation.

Changes in estimates of future taxable income due to deteriorating business conditions or changes in tax rates due to tax reform may necessitate the reversal of deferred tax assets, potentially affecting business results. As a countermeasure, the Group reports the performance trends and outlook of each Group company to the Board of Directors and builds a system to take timely measures upon detecting signs of deteriorating performance.

Major earthquakes, natural disasters associated with climate change, and the spread of infectious diseases could disrupt sales activities, production activities, and operations, potentially adversely affecting business results. As a countermeasure, the Group has established "Crisis Management Regulations" to work on minimizing losses, restoring damage, and preventing recurrence, while also formulating and reviewing its Business Continuity Plan (BCP).

Serious compliance violations in wide-ranging laws and regulations covering product quality, safety, intellectual property, labor affairs, accounting standards, tax law, environmental preservation, and more could result in a loss of social trust and adversely affect business results. As a countermeasure, in addition to establishing the "Basic Compliance Regulations" and conducting training, the Group has established a whistleblowing system to prevent and detect legal violations early and improve its self-correcting processes.