WOOD ONE CO ,LTD.

The Group's core business is the manufacture and sale of housing materials and housing equipment, and there is a risk that a decline in new housing starts or construction delays due to a shortage of skilled labor could lead to a decrease in sales. While the Group seeks to mitigate this impact through development of the renovation market, non-residential market, and overseas sales channels, as well as through the development of labor-saving construction products, the structural contraction of the domestic housing market could become a factor pressuring performance over the medium to long term.

Since the Group's main business is the manufacture of secondary wood-processed products centered on flooring materials, difficulties in procuring raw timber or sharp price increases directly affect performance. The Group seeks to mitigate this risk by relying primarily on the 30-year cyclical sustainable forestry operations of its New Zealand subsidiary, Juken New Zealand Ltd., as a supply source; however, this subsidiary has recorded ordinary losses for five consecutive fiscal periods since FY2022 (ending March 2022), and structural reform to stabilize procurement costs remains an ongoing challenge.

The New Zealand subsidiary, Juken New Zealand Ltd., has recorded ordinary losses for five consecutive fiscal periods from FY2022 (ending March 2022) through FY2026 (ending March 2026) (¥(2,588) million in FY2024 (ending March 2024), ¥(1,992) million in FY2025 (ending March 2025), and ¥(1,329) million in FY2026 (ending March 2026)), and the subsidiary's total assets have reached ¥43,597 million. If performance fails to improve or deteriorates further, this could have a material impact on the financial position and business performance of the Group as a whole. The Group is pursuing profitability improvement measures such as reviewing unprofitable operations and shifting toward higher value-added products.

The balance of interest-bearing debt increased from ¥33,639 million in FY2022 (ending March 2022) to ¥42,844 million in FY2026 (ending March 2026), and the ratio of interest-bearing debt dependence rose from 35.4% to 41.1%. The equity ratio has declined to 42.5%, and depending on future interest rate trends, an increase in financial costs could affect business performance. The Group's policy is to maintain interest-bearing debt at an appropriate level through more efficient use of management resources.

Some of the Group's borrowings are subject to financial covenants, and a breach of these covenants would risk the loss of the benefit of time regarding repayment obligations. Although no breach has occurred as of the end of the current consolidated fiscal year, the likelihood of a covenant breach increases in a downturn scenario amid the rising trend in interest-bearing debt dependence. Continuous monitoring of the financial condition is required.

Since timber purchases from the New Zealand subsidiary are settled in yen, direct foreign exchange risk is limited; however, consolidated net sales and profit may fluctuate due to exchange rate movements when translating the results of overseas subsidiaries into the consolidated financial statements. In addition, foreign exchange gains or losses may arise from borrowings and operating transactions denominated in currencies other than the local currency conducted by overseas subsidiaries, and the Group implements hedges such as forward foreign exchange contracts as necessary.

Geopolitical risk arising from escalating tensions in the Middle East may cause fluctuations in resource and energy prices and disruptions to transportation routes, potentially increasing the cost of sales through higher prices for auxiliary materials such as paints and adhesives, as well as higher manufacturing and transportation expenses. This may broadly affect production, logistics, and sales activities, including a temporary decline in housing demand and volatility in the earnings of overseas subsidiaries. The Group is promoting diversification of procurement sources and appropriate price pass-through as countermeasures.

In operating the Wood Biomass Power Generation & Electricity Sales Service, there is a risk that fuel supply could be interrupted or reduced due to rising ocean freight costs, foreign exchange fluctuations, the commencement of operations of new large-scale biomass power plants nearby, or natural disasters. If fuel prices rise sharply or a power plant is shut down for an extended period due to a major mechanical failure, electricity sales may decline and affect business performance. The Group is addressing this risk by increasing the ratio of self-procurement from its Philippine subsidiary, diversifying domestic suppliers, and thoroughly conducting periodic inspections.

The Group manages production, sales, and administrative operations using information systems, and if these systems are disrupted by natural disasters, system failures, malware infection, ransomware, hacking, or similar causes, or if customer information or confidential information is leaked, this could disrupt business activities and damage the Group's social credibility, potentially having a material impact on its financial position and business performance. The Group is implementing countermeasures such as endpoint protection, monitoring for unauthorized access, and security education for all employees, centered on its Information Security Promotion Committee.

The Group holds fixed assets such as property, plant and equipment and artworks, and if estimated future cash flows from fixed assets decline due to future changes in the operating environment, or if the recoverable value of artworks declines significantly, additional impairment losses may occur, affecting the Group's financial position and business performance. Given the scale of the Group's overall assets, including the ¥43,597 million in total assets held by the New Zealand subsidiary, the materialization of impairment risk could have a significant financial impact, and the Group continues to regularly assess asset values and implement measures to prevent value declines.