TRANSACTION CO.,Ltd.

The Group sells sales promotion merchandise for corporate clients as well as general merchandise for wholesale and retail, and its business performance may be affected by client companies' reductions in advertising and sales promotion expenses, postponement of implementation timing, or a decline in purchases by general consumers due to cooling consumer sentiment. In a phase of economic downturn, there is a risk that demand from both corporate and individual customers could decline simultaneously. No specific countermeasures are disclosed in the Annual Securities Report.

When defective products occur, costs such as discounts, re-production, and recalls arise, and the occurrence of defects in projects with large order amounts may have a material impact on business performance and financial condition. The Company maintains product liability insurance, but there remains a risk that damages may exceed the insurance coverage. In addition, if licensing agreements with rights holders for character and brand merchandise are refused renewal, terminated, or expire, this could also affect business performance.

The Company positions M&A and capital and business alliances as a key strategy, but if unforeseen events or changes in the business environment prevent business development from proceeding as planned after execution, or if the initially expected synergies are not achieved, there is a risk that the anticipated contribution to business performance will not be realized. Furthermore, impairment of goodwill or shares may become necessary, which could also affect the financial condition. The Company strives to avoid such risks by conducting financial and legal due diligence in advance.

Import transactions with China and other Asian countries are conducted primarily in US dollars, and exchange rate fluctuations directly affect purchase prices. Although hedging measures such as forward exchange contracts are employed, significant exchange rate fluctuations may affect business performance and financial condition. In a yen-depreciation phase, the risk of rising procurement costs squeezing profitability increases.

Because the Company outsources production to suppliers in Asian countries under a "mobile fabless" format, delivery delays or the need for re-production may arise due to bankruptcy of outsourcing partners, political turmoil, natural disasters, disease, infrastructure failures, and the like. In addition, a sharp rise in the price of raw materials such as cotton or petrochemical products may affect procurement prices. The Company addresses this by securing multiple production sites and selecting optimal production locations, but a risk remains that unforeseen events cannot be fully addressed.

Sharp increases in raw material prices caused by trade restrictions arising from US-China trade friction, or unforeseen events due to China's political and regulatory environment, may cause problems in product procurement. The Company leverages its "mobile fabless" format to place orders with suppliers across multiple regions in a distributed manner, but if regulatory tightening spreads broadly, responding may become difficult. The impact on business performance depends on the trajectory of geopolitical risk.

Since product imports from Asian countries rely primarily on ocean transport, there are risks of shipping disruption due to terrorism, regional conflicts, or deteriorating international relations, rising transport costs due to surging crude oil prices, and transport delays and cost increases due to tight container supply-demand conditions. The Company seeks to optimize by reviewing logistics routes, but if events beyond expectations occur, business performance could be affected.

If a leak of personal information or customer information held by the Company occurs due to unauthorized external access or negligence by internal personnel, this could lead to a decline in credibility and affect business performance. The Company has implemented measures such as establishing personal information management regulations and information system management regulations, and concluding confidentiality agreements with outside contractors, but risks associated with increasingly sophisticated cyberattacks continue to exist.

Because the Company relies on outsourcing production to suppliers in Asian countries, if unforeseen natural disasters caused by climate change occur, stable product supply may become difficult due to disruptions in product procurement and logistics or interruptions in energy supply. There is also a risk that business costs will increase due to the introduction or strengthening of new laws and regulations accompanying global climate change countermeasures. In May 2023, the Company announced its endorsement of the TCFD recommendations and is proceeding with measures targeting 100% renewable energy for its electricity usage by 2050.

The probability of a magnitude-7-class earthquake directly beneath the Tokyo metropolitan area occurring within the next 30 years is estimated at approximately 70%, and it is assumed that if such an event occurs, the majority of business activities would be suspended until infrastructure and lifelines are restored. The Company has formulated a Business Continuity Plan (BCP) and has secured approximately ¥5.5 billion in necessary funds, including for maintaining the livelihoods of employees and their families, but costs for restoring factories and offices exceeding insurance payouts have not been factored in, leaving a material impact on financial condition unaddressed.