HASHIMOTO SOGYO HOLDINGS CO.,LTD.

Demand for piping equipment such as steel pipes, fittings and valves, as well as sanitary ware and residential equipment wholesaled by the Group, arises in connection with construction investment, primarily private residential equipment investment. As a result, the business has a structure in which fluctuations in construction investment directly affect performance, raising concerns about a significant decline in net sales during economic downturns or when new housing starts decrease. The annual securities report does not describe specific countermeasures, leaving a structural vulnerability to demand fluctuation risk.

If a pandemic such as COVID-19 or a large-scale natural disaster occurs on a scale exceeding expectations, operations at multiple business sites and logistics facilities may become difficult, potentially having a significant impact on the financial position and results of operations. As countermeasures, the Group has diversified its business operation functions and offices and established multiple logistics bases, and has put in place a system to promote telework implementation, formulation of conduct standards, and activation of BCP manuals in the event of an emergency.

Purchase prices of handled products fluctuate due to changes in manufacturers' raw material prices, and if these fluctuate significantly over a short period, it takes a certain amount of time to pass the changes through to selling prices, creating a risk that gross profit margin will decline during that period. The Group's policy is to respond to price changes quickly and flexibly, but in periods of sharp increases in raw material prices, there may be periods in which sufficient price pass-through cannot be achieved, potentially worsening profitability.

The Group extends long-term and short-term loans to specific customers who are important to its business operations, and some of these borrowers include companies with negative net worth or that have recorded losses in their most recent fiscal period. If the financial condition of a business partner deteriorates more than expected, collection of receivables may be delayed, potentially affecting performance. While the Group addresses this through recording allowances for doubtful accounts that take collateral and guarantees into consideration and through careful credit investigations, the risk remains.

The Company registered as a money lender with the Tokyo Metropolitan Government in September 2003 and conducts bill discounting operations aimed at supporting the cash flow of business partners. If the financial condition of a company issuing such bills deteriorates, losses may arise in this business, potentially affecting the Group's performance. The Company operates while carefully weighing, on a case-by-case basis, the business benefits of supporting business partners against the associated credit risk.

In the fiscal year under review, approximately 30% of the Group's consolidated total purchases were from TOTO LTD., with the majority of the sanitary ware segment dependent on this company. If, for any reason, transactions with this company become impossible, securing alternative sources of supply would be difficult, potentially having a material impact on the Group's performance. The high degree of supplier concentration and the maintenance of this business relationship represent an important issue for business continuity.

Strengthening, relaxation, or amendment of legal regulations such as the Revised Energy Conservation Act or the Low Carbon Act may change the demand structure and business environment for products handled by the Group, potentially affecting performance. While tighter regulations could create a shift in demand toward energy-saving products, there is also a risk that deregulation could change the competitive environment for existing products. The annual securities report does not describe specific countermeasures.