SUPER TOOL CO., LTD.

If an economic downturn occurs in major markets such as Japan, Asia, and Europe, demand for products and merchandise may decline due to reduced personal consumption and capital expenditure, potentially adversely affecting sales and profitability. There is a risk that price competition will intensify simultaneously. The Group states that it strives to avoid the occurrence of such risks and to respond when they arise, but details of specific countermeasures have not been disclosed.

In the 65th fiscal year, TRUSCO NAKAYAMA CORPORATION accounted for 29.8% of net sales (¥1,561,788 thousand), and YAMAZEN CORPORATION accounted for 19.5% (¥1,021,998 thousand), with the top two companies together accounting for approximately 49.3% of net sales, indicating a high degree of dependence. Should these customers change their management policies or transaction terms, this could have a material impact on the Group's operating results. While relationships with both companies are currently recognized as favorable, the dependence on TRUSCO NAKAYAMA CORPORATION has risen from 21.9% to 29.8% between the 63rd and 65th fiscal years, indicating an increasing concentration risk.

The Environment-Related Business, which involves the purchase and sale of solar panels and other products, already faces intense competition from numerous companies, including major corporations. If price competition intensifies further or the number of new entrants increases, this could adversely affect the Group's business development and operating results. The Group has not disclosed a specific differentiation strategy, making the maintenance of competitive advantage a challenge.

Changes in government policies, such as subsidies to support the introduction of residential solar power generation, special depreciation and tax credits for equipment that reduces environmental burden through energy efficiency, and fluctuations in electricity sales prices, could reduce end users' willingness to install solar power generation systems, potentially affecting the operating results of the Environment-Related Business. Given the business's high dependence on policy, its sensitivity to risks from institutional changes is elevated. The Group has not disclosed specific countermeasures for policy changes.

If the prices of raw materials, including steel, rise due to fluctuations in supply and demand or other factors, manufacturing costs may increase, potentially adversely affecting operating results. The Group is working to thoroughly reduce costs through improved production efficiency and other measures, but there is no guarantee that increases in raw material prices can be fully absorbed. For the Group, whose core business is the Metal Products business, trends in steel prices are a key risk factor directly linked to profitability.

The Group conducts foreign currency-denominated settlements in trade transactions, and fluctuations in foreign exchange rates may affect operating results. As a risk reduction measure, the Group uses hedging instruments such as forward foreign exchange contracts, but it is explicitly stated that there is no guarantee that exchange rate fluctuation risk can be completely avoided through such measures. As the Group operates in multiple markets including Japan, Asia, and Europe, it is required to respond to foreign exchange risk across multiple currencies.

For products in the Metal Products business, if selling prices decline due to changes in market trends or shifts in customers' sales strategies, or if actual sales significantly fall short of initial forecasts, additional inventory valuation losses may need to be recorded. The valuation method used is a combination of adopting the lower of net realizable value or acquisition cost, and systematically writing down the book value of items exceeding a certain elapsed period or turnover period. The recording of valuation losses poses a risk of directly affecting the Group's financial position and business performance.

Although the Group manufactures products under thorough quality control, should a quality issue arise, it could affect business performance through the occurrence of damages claims or a decline in confidence in product quality. The Group has taken out product liability insurance to prepare for unforeseen circumstances, implementing a certain degree of risk transfer. However, risks remain regarding damages not covered by insurance and customer attrition due to reputational damage.

Should accidents such as fires or natural disasters such as earthquakes occur, this could affect sales due to reduced production capacity, and may require significant expenditure to restore production facilities. The Group implements safety measures such as equipment inspections, safety devices, and fire extinguishing equipment, but it is explicitly stated that these measures do not completely eliminate the risk. Since damage to manufacturing sites would directly impact business continuity, the effectiveness of BCP (Business Continuity Planning) is important.