JAPAN MATERIAL Co.,Ltd.

The Electronics-related Business accounts for 96.7% of consolidated net sales, and the Group is highly dependent on infrastructure businesses such as special gas, ultrapure water, and chemical solutions for semiconductor and LCD-related factories. The semiconductor market is subject to large short-term swings between booms and downturns, creating a risk of sharp supply-demand imbalances and price fluctuations during periods of demand expansion or contraction. Business performance is highly susceptible to the capital expenditure trends of major customers, and failure to respond appropriately to such changes could have a material impact on the Group's business performance and financial position.

In FY2026 (ending March 2026), sales to the Kioxia Corporation group amounted to ¥20,309 million (35.0% of consolidated net sales of ¥57,976 million), indicating an extremely high degree of dependence on a single customer. If transactions with this group were to be reduced for any reason, it would have a direct and significant impact on the Group's business performance and financial position. Although the Group strives to maintain long-term stable transactions and develop new customers, resolving this dependence poses a structural challenge that will take time.

The supply regions for certain raw materials such as special gases are limited, creating a risk of supply disruption or delay due to war, conflict, or trade restrictions on imports and exports. If such supply disruptions occur, it may become difficult to maintain stable supply to customers, which could affect the Group's business performance and financial position. Against a backdrop of heightened geopolitical risk, diversifying procurement sources has become an ongoing challenge.

There is a risk that the prices of raw materials purchased by the Group will rise due to surging oil prices and higher resource costs. If the Group is unable to pass on such price increases to selling prices, profitability may deteriorate, potentially affecting business performance and financial position. The structure of the business exposes it directly to cost pressure from international fluctuations in energy and resource prices.

Because the Group develops its business by constructing facilities on or adjacent to customers' premises, there is a risk that some or all of such facilities could become unnecessary due to consolidation or reorganization of customers' production sites. In such cases, losses on disposal of fixed assets and similar costs may arise, affecting business performance and financial position. While this customer-centric business model provides stable revenue, it also carries the inherent risk that performance is linked to customers' management decisions.

The Group applies accounting standards related to impairment of fixed assets, and impairment losses may arise depending on deterioration in the earnings or cash flows of business offices or subsidiaries. Because the Group has numerous sites both domestically and overseas, there is a risk that deteriorating performance at a specific site could affect the consolidated financial statements. Depending on future changes in the business environment, additional impairment losses may need to be recognized.

Although the Group manufactures products and carries out Supply Piping Design & Construction under ISO9001 certification, there is no guarantee that all products or construction work will be free of defects. If a serious quality problem occurs, it could affect business performance and financial position through loss of credibility and the incurrence of compensation costs. Although the Group carries product liability insurance, there is no guarantee that damages will be sufficiently covered within the limits of such insurance.

The Group imports raw materials, goods, and products from overseas companies and exports to overseas markets, creating a risk that exchange rate fluctuations could affect earnings. Although the Group continuously implements hedges through forward exchange contracts and similar measures, failure to cope with sharp exchange rate fluctuations could affect business performance and financial position. While a weaker yen increases import costs and pressures earnings, it also has a positive effect on export revenue.

In the Electronics-related Business, the Group holds licenses and has made notifications under multiple laws and regulations, including the Construction Business Act, the High Pressure Gas Safety Act, and the Poisonous and Deleterious Substances Control Act. If such licenses or permits were revoked due to a violation of laws and regulations, it would have a material impact on order intake and business performance. Although the Group currently does not recognize any grounds for revocation, maintaining a legal compliance framework remains an ongoing requirement. Significant regulatory changes could also affect business performance and financial position.

Natural disasters such as earthquakes could cause serious damage to the Group's manufacturing and other sites, with particular concern regarding damage in Japan, where earthquake risk is high. If a business partner's manufacturing site is damaged, this could also affect the Group's business performance and financial position through decreased sales and other effects. The Group's business model of establishing sites on or adjacent to customers' premises carries the risk that damage to a customer's site and damage to the Group's own site could occur simultaneously.