OTAKE CORPORATION

The pipe and plumbing equipment industry to which the Company Group belongs has a structure in which its business performance is affected by trends in public and private capital investment. Against a backdrop of uncertainty regarding the economic outlook due to heightened geopolitical risk and other factors, a decrease in public investment or private capital investment could adversely affect the Group's financial position, business results, and cash flows. As a countermeasure, the Group intends to continue addressing challenges based on its management policy.

Since the majority of sales are conducted on credit, there is a risk that if a business counterparty's earnings or financial position deteriorates sharply, a portion of the trade receivables held may become uncollectible. As credit management measures, the Company obtains customers' financial information and sets credit limits, and also utilizes payment guarantee agreements (guarantee transaction agreements) with factoring companies to control the occurrence of non-performing receivables.

The purchase prices of products handled may fluctuate depending on the supply conditions of materials and market price trends, and in the event of sudden price changes, adjustments to inventory levels and pass-through to selling prices may not be sufficient to respond. This could adversely affect the financial position, business results, and cash flows of the Group. The Product Division and Sales Headquarters closely monitor sales and price trends, and work to control price fluctuation risk through agile product strategies.

Although the Company has built a delivery network in cooperation with partner transportation companies, a further rise in logistics costs stemming from the shortage of delivery drivers could adversely affect the Group's financial position, business results, and cash flows. The Company addresses cost control by optimizing inventory levels at each location and reviewing the logistics network between locations.

If the profitability of each location declines and the total future cash flows generated by operating assets fall below their book value, impairment treatment may become necessary, which could adversely affect the Group's financial position and business results. The Company continuously monitors monthly trends in revenue and costs by location, and strives to improve profitability and control the risk of recording losses through the development of product sales strategies that take into account regional customer characteristics.

There is a risk that real estate such as land and buildings, as well as movable property such as fixtures and equipment held at the head office and locations nationwide, could suffer property damage due to natural disasters such as earthquakes and floods. In the event of such a disaster, normal business processing and sales activities could become difficult, potentially affecting the Group's financial position, business results, and cash flows. The Company addresses this through the enhancement and strengthening of operational facilities and the establishment of a disaster prevention management system, including various disaster countermeasures.