HOKUSHIN CO., LTD.

The housing market and related markets are heavily influenced by economic conditions, and performance may decline when personal consumption weakens due to an economic downturn. In addition, if imports of low-priced wood-based materials and building materials from overseas expand and cause domestic manufacturers to decline, this would significantly affect performance. The Company strives to avoid the occurrence of these risks and to respond appropriately when they materialize.

Crude oil and natural gas prices fluctuate significantly due to conditions in producing countries and international supply-demand balance, and there is a risk that manufacturing costs will vary substantially as this affects the prices of petrochemical products used as adhesive raw materials and energy sources such as electricity and LNG. The Company addresses this by conducting annual negotiations focused on stable supply and stable pricing, as well as reviewing supply sources.

The Company depends on overseas imports for approximately 67% of the wood chips used as raw materials for its products, and if logging restrictions are tightened in Southeast Asia or the timber industry declines or shrinks, securing raw materials could become difficult, potentially affecting the Company's continued existence. As countermeasures, the Company is researching new supply sources such as plantation wood chips, recycled chips, and domestically procured softwood chips, and is actively pursuing material recycling of its products.

Sales of purchased products account for approximately 10% of total net sales, and if a stable supply volume from suppliers or appropriate purchase prices cannot be maintained, this could have a significant impact on performance. The Company conducts regular visits for information exchange and provides technical support for quality improvement in order to maintain good mutual trust relationships with suppliers.

In a yen appreciation phase, while this contributes to reducing wood chip and energy costs, there is a risk that it will facilitate the entry of overseas MDF manufacturers into the Japanese market, intensifying price competition. In a yen depreciation phase, wood chip purchase prices rise, and if this cannot be passed on to selling prices, it will lead to reduced revenue and lower profits. The Company enters into forward exchange contracts to reduce the risk of sharp exchange rate fluctuations.

The Company has established defined benefit and defined contribution corporate pension plans, and revisions to the actuarial assumptions used in calculating retirement benefit obligations (salary increase rate, discount rate, average remaining service years of employees) or changes in the investment environment for pension assets may cause retirement benefit expenses to increase or decrease, potentially affecting performance. At present, no specific countermeasures are described in the Annual Securities Report.

Large-scale earthquakes, tsunamis, typhoons, floods, and other natural disasters could cause severe damage to production, sales, and logistics facilities, and the outbreak of a new infectious disease could result in factory shutdowns or supply chain disruptions, affecting business operations, financial condition, and operating results. The Company has established a BCP and, based on its crisis management manual, has established procedures for evacuation instructions, safety assurance, and early recovery response through the establishment of a disaster response headquarters; however, it may not be able to fully respond to unforeseen large-scale disasters.

If unexpected unauthorized access or computer virus intrusion causes information systems to shut down or information to leak, this could affect business operations, financial condition, and operating results. The Company has established information security regulations under its basic information security policy and strives to prevent information leaks and respond to external system intrusions, but this does not guarantee complete protection.