SANEI LTD.

The majority of net sales depend on domestic economic trends and housing demand. If new construction and renovation demand fluctuate significantly due to deregulation, changes in housing policy, or interest rate trends, this may affect business results and financial position. As a countermeasure, the Group is implementing cost reductions through operational efficiency improvements and striving to maintain a robust financial base.

There is a risk that rising prices of copper alloys and other key raw materials for faucet fittings will squeeze profitability. The Group seeks to absorb this through cost reductions and price pass-through, but full absorption may be difficult in the event of an unexpectedly sharp rise. A stable procurement system is being built by strengthening relationships with multiple domestic and overseas suppliers and business partners.

Price competition in the housing equipment industry is fierce, and there is no guarantee that the Group can maintain its competitive advantage in the future. If exposed to intense price competition, this may adversely affect business results and financial position. The Group is working to secure competitive advantage through the development of high value-added products and to reduce costs.

While plants are dispersed across Gifu Prefecture, Osaka Prefecture, and Dalian, China, the supply chain is concentrated in the Chubu region, and in the event of a large-scale earthquake or other disaster, delays in production and shipment or substantial repair costs may result. There is also a risk that sales may decline due to cancellation of exhibitions or closure of showrooms in the event of a large-scale infectious disease outbreak. The Group aims to mitigate these risks by promoting BCP formulation and diversifying sales channels (home centers, e-commerce, overseas routes).

Foreign currency-denominated transactions associated with local production at the Chinese subsidiary, and the yen translation of that subsidiary's assets and liabilities, mean that exchange rate fluctuations may affect business results and financial position. The Group strives to avoid or mitigate foreign exchange risk by conducting transactions in yen in principle, but risk remains with respect to the portion related to the China business.

Rising fuel prices and increasing labor costs at logistics contractors may increase logistics costs and affect business performance. The Group is curbing cost increases through greater efficiency in logistics operations and by diversifying transactions across multiple logistics contractors, but if full absorption is difficult, it plans to consider passing costs on to product prices.

Although manufacturing is conducted in accordance with quality control standards, the Group cannot fully guarantee the elimination of defects in all products or the absence of future recalls. If a large-scale recall occurs, damages not covered by product liability insurance may arise, potentially having a material impact on business results and financial position. The Group has established a system for prompt response through the operation of a quality management system based on ISO9001 and the introduction of a traceability system.

If system trouble or information leakage occurs due to unauthorized external access or computer virus infection, this may affect business results and financial position. The Group seeks to reduce risk through the formulation and training of appropriate system failure recovery plans and through monitoring and regular reporting by a dedicated information security department.

The Group conducts business activities in Asian countries such as China, Taiwan, Indonesia, and Thailand, and changes in laws, regulations, and tax systems, political and social unrest such as terrorism, war, or civil strife, and unforeseen deterioration in economic conditions may affect business results and financial position. A specialized department at the Japanese head office collects information on the economic, social, and political conditions and regulatory trends of each country, and has established a system to respond in cooperation with local agents and others.

Depending on business performance trends, impairment losses on tangible fixed assets may occur, and reductions in the valuation of inventories, investment securities, and other assets may become necessary, which may affect business results and financial position. The Group conducts periodic verification of investment value through deliberation on investment plans at the Board of Directors and management meetings, regular monitoring after investment, and monthly assessment of the market value of securities.