HATSUHO SHOUJI CO.,LTD.

The Group's products are largely related to building construction such as buildings and exterior construction work, and if construction demand declines more than expected or prices fluctuate significantly, this may affect business performance and financial condition. As a countermeasure, the Group is working to reduce fixed costs and other expenses, but fundamental solutions to changes in the external environment are limited.

If the declining birthrate and aging population in Japan lead to a decrease in the number of newly built houses, a slowdown in the growth rate of non-residential construction, and order restrictions due to labor shortages, this may affect business performance and financial condition. The Group relies solely on domestic sales, giving it a structure that is directly susceptible to market contraction. As a countermeasure, the Group is working to build a management foundation that promotes diversified business development and considers entry into growth markets.

For its core products, Lightweight Steel Framing Materials and exterior materials, the Group purchases a certain proportion from specific business partners, and if there are sudden changes in the relationship with these partners or major changes to contract terms, this may affect business performance and financial condition. Although the Group is considering diversifying its procurement routes, its current policy places priority on maintaining and developing existing business relationships, and efforts to reduce dependence remain gradual.

If delivery costs rise due to the application of overtime work limit regulations in the logistics industry (the so-called 2024 issue) and soaring crude oil prices, and delivery restrictions occur due to a shortage of delivery drivers, this may affect business performance and financial condition. The Group has built its delivery network through cooperation with affiliated transportation companies, which leaves it vulnerable to changes in the external environment. As a countermeasure, the Group is working to maintain good relationships with partner companies and secure personnel by improving driver treatment.

As most of the Group's customers are related to the construction industry, if a decline in construction demand leads to bankruptcies among business partners, this may affect business performance due to the inability to collect accounts receivable. There is an inherent credit risk due to concentration in a single industry, making the Group susceptible to chain reaction effects in a downturn of the construction market. As a countermeasure, the Group is working to prevent the occurrence of bad debts through early collection of accounts receivable, gathering credit information, and improving its credit management system.

Developing and securing excellent human resources is essential for building a management foundation to achieve the goal of becoming a "100-year company," and if the Group is unable to secure the necessary personnel, this may affect its business development and performance. Competition for recruitment is expected to intensify against the backdrop of a declining working population due to the falling birthrate and aging population. As a countermeasure, the Group is working on human resource development through investment in education, support for new challenges, active personnel appointment, and improvements in salary and treatment.

If violations of laws and regulations or acts contrary to corporate ethics occur, this may result in direct damage as well as loss of credibility and liability for damages, which may affect business performance. Compliance management is required across the entire Group, including subsidiaries. As a countermeasure, the Group is promoting the establishment of a compliance system that includes subsidiaries, strengthening governance, and conducting compliance education activities.

If signs emerge that investment recovery has become impossible with respect to fixed assets held by the Group or intangible fixed assets such as customer-related assets associated with corporate acquisitions, an impairment assessment must be conducted based on the calculation of future cash flows, and recognition of impairment losses may become necessary. The recognition of impairment losses directly affects business performance and financial condition. As a countermeasure, the Group is taking risk measures through early guidance from the sales headquarters and other divisions and continuous performance monitoring.

If a failure occurs in the core business system due to computer virus infection or unauthorized access, business activities may be temporarily suspended. The Group uses various information systems in its business activities, and risks continue to exist due to the increasing sophistication and diversification of cyberattacks. As a countermeasure, the Group is working on introducing security countermeasure products, establishing a backup system for important data, conducting training for responding to targeted attack emails, and providing information security education.