ADVAN GROUP CO., LTD.

The Group sells building finishing materials and housing-related products such as system kitchens and faucet fixtures to domestic condominiums, houses, commercial facilities, and other end markets. If significant fluctuations in economic conditions or construction demand occur, such as those caused by the spread of COVID-19, this could affect business performance. As countermeasures, the Group works to improve inventory turnover and develop and sell new products, while avoiding dependence on specific customers and reducing risk by diversifying sales across various customers and fields.

The majority of the Group's product procurement comes from overseas manufacturers, primarily in Europe and Asia. If political or economic instability arises in major sourcing countries, or if a global-scale infectious disease causes long-term disruption to the movement of people and goods, this could hinder product procurement and affect business performance. As countermeasures, the Group works to diversify sourcing countries and regions and reduce risk by holding a certain level of inventory at its three logistics centers located nationwide.

Since payments for overseas product procurement are settled mainly in foreign currencies, primarily US dollars, significant fluctuations in exchange rates could affect business performance. In addition, because the fair value of forward exchange contracts is revalued at fiscal year-end (mark-to-market accounting) and the resulting valuation gains or losses are recorded in non-operating income/expenses, ordinary income and profit attributable to owners of parent are subject to the risk of significant fluctuation depending on exchange rate movements at fiscal year-end. As a countermeasure, the Group utilizes forward exchange contracts to reduce exchange rate fluctuation risk at the time of product settlement, does not engage in speculative transactions, and conducts all transactions in accordance with its foreign exchange management regulations under the approval of the Representative Director.

The Group is subject to a wide range of laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, the Corporation Tax Act, the Antimonopoly Act, and the Construction Business Act. If legal amendments or new legal regulations are introduced due to changes in social conditions or other factors, this could affect business performance. As a countermeasure, the Group strives to establish a system capable of flexibly responding to changes in the market, business environment, and social conditions.

Given the Group's business structure of holding inventory at domestic in-house logistics centers, if a large-scale earthquake or other natural disaster occurs, this could result in the disposal of inventory assets, a decline in net sales, delivery delays and cost increases due to supply chain disruption, and thereby affect business performance. As a countermeasure, the Group disperses risk in the event of a disaster by locating logistics centers across three sites in the Kanto, Kansai, and Kyushu regions, while working on an ongoing basis to strengthen safety management, product management, and logistics systems.