SANKO CO., LTD.

Final demand for Automotive-Related Products and Digital Home Appliance-Related Products is affected by the economic conditions of the countries and regions where they are marketed, directly impacting the production trends of business partners. Although the Group aims to reduce its dependence on specific business partners, a decrease in demand from business partners directly leads to a decrease in orders, which may affect the business plan, results of operations, and financial position. The Group is addressing diversification of its earnings structure as a management challenge.

Market competition is intensifying due to technological transformation and progressing globalization in the automotive industry, raising concerns about further declines in order prices due to international competition. The Group is responding by entering the electrical component, safe driving product, and EV-related product fields, and expanding orders from a wide range of business partners; however, trends in the boom and bust cycles of the automotive industry may affect results of operations and financial position.

If prices of raw materials essential to production activities rise, profit margins and price competitiveness may decline, adversely affecting results of operations and financial position. If it is difficult to pass on raw material costs, this could lead to deteriorating profitability. The annual securities report does not specify concrete measures such as diversification of suppliers or price hedging strategies.

Although the Group has established a quality control system and strives to ensure high quality standards, complete elimination of defective products is difficult, and in the event of a defect, the Group may bear liability for damages, which could affect its credibility and results of operations. Since the Group supplies automotive parts, products for which safety is emphasized, quality problems carry the risk of spreading to relationships with business partners.

The Group has production bases overseas (such as in Thailand), and in the event of a significant appreciation of the yen, foreign exchange losses may occur, which could affect results of operations and financial position. Because the Group conducts overseas production and sales, exchange rate fluctuations affect both sales and costs, carrying the risk of undermining earnings stability.

If production bases and facilities are damaged by natural disasters such as earthquakes, typhoons, or floods, or by viral infections among employees, parts production capacity may decline, making operations difficult. Although each production base engages in disaster prevention activities, there is a risk of a significant impact on results of operations and financial position in the event of a disaster.

The Group possesses core production systems and accounting information systems, and has established a basic policy on information security, continuously working to ensure security levels. If an unforeseen event causes disruption to the information systems, operations may be interrupted, which could affect results of operations and financial position.

At the end of the current consolidated fiscal year, the total valuation amount of investment securities (shares) held for pure investment purposes was ¥498 million; a stock investment limit of ¥1,000 million has been set, and flexible stock investments are made using surplus funds. If the share price of held stocks declines, a valuation loss may occur, which could affect the financial position.

Because the Group conducts overseas manufacturing and sales with Thailand as its base, if changes in social conditions due to political and economic factors, or geopolitical risks such as regional conflicts or terrorism, materialize, production activities could be significantly affected. The dependence on a single base in Thailand leads to a concentration of geopolitical risk, raising concerns about the impact on results of operations and financial position.

Recruiting and developing excellent human resources is important for maintaining competitiveness, but if it becomes difficult to secure and develop personnel, or if recruitment costs increase or technology succession fails, this may affect the Group's future growth. As a company with proprietary technologies such as highly precise mold-making capabilities, a break in technology succession carries the risk of directly leading to a loss of competitive advantage.