NAKAYAMAFUKU CO.,LTD.

If a business downturn at a customer results in the inability to collect receivables, or if a business downturn or closure at a supplier results in the suspension of merchandise supply, this could adversely affect business performance and financial condition. Although counterparty management is conducted through risk management, complete elimination of this risk is difficult.

Approximately 5% of merchandise sold is imported from countries in Asia and the EU, exposing the company to foreign exchange fluctuation risk in the settlement of import payments. Although hedging transactions are used to reduce this risk to a certain extent, sharp fluctuations in the foreign exchange market could adversely affect business performance and financial condition.

As working capital and capital expenditure funds are raised through borrowings from domestic financial institutions, there is a risk that rising interest rates could increase funding costs or constrain the amount of funds that can be raised. Future changes in financial conditions could adversely affect business performance and financial condition.

The raw materials for the company's principal merchandise include aluminum, stainless steel, iron, and naphtha (for plastics), exposing the company to the risk of rising raw material prices, including fluctuations in crude oil prices. If significant increases in purchase prices cannot be passed on to selling prices, this could adversely affect business performance and financial condition.

The company holds substantial land, buildings, and other business-use assets. If changes in the business environment cause market values to fall significantly below book values, or if the profitability of individual locations deteriorates, impairment may become necessary. This poses a risk of a material adverse effect on business performance and financial condition.

The company holds marketable shares for the purpose of maintaining relationships with business partners. A significant decline in share prices would result in impairment losses or valuation losses on the shares held. In addition to an adverse effect on business performance and financial condition, this could also lead to a decline in the equity ratio.

If cyberattacks, computer virus infections, or unauthorized access result in the leakage, loss, or tampering of information, this could damage the company's social credibility and adversely affect business performance and financial condition. The company is working to strengthen security measures and monitoring systems to prevent unauthorized external intrusion, but complete protection cannot be guaranteed.

To reduce costs, the company procures merchandise from overseas manufacturers, primarily in China, which entails a risk of quality control issues. Should a large-scale quality problem occur, recall costs and a decline in brand strength could adversely affect business performance and financial condition. The company addresses this risk to a certain extent through insurance coverage.

The logistics system is positioned as a core element of management, but labor shortages and changes in the working environment within the logistics industry could lead to a serious increase in logistics costs. Although the company is promoting the maintenance and efficiency of a stable logistics system, rising costs pose a risk of adversely affecting business performance and financial condition.

Due to Japan's declining population, changes in the employment environment, and intensifying competition for talent, employee turnover may increase and hiring may become more difficult. Although the company conducts recruitment activities and employee education and development to support sustainable growth, a worsening labor shortage poses a risk of adversely affecting business performance and financial condition.