SANKO SANGYO CO.,LTD.

Orders for labels and panels for the electrical equipment industry, the Group's core business, are heavily influenced by external factors beyond the Group's control, such as customer companies' business performance and the offshore shift of manufacturing lines. In addition, responding to customers' requests for price reductions may lead to a decline in profit margins. As a countermeasure, the Group is promoting, as a priority policy, expansion of its share in the panel components industry and avoidance of a business structure dependent on orders from specific customers.

If raw material prices or outsourcing unit costs rise significantly and the Group is unable to pass on such increases through product prices, this could adversely affect the Group's business performance. Given the cost structure for manufacturing products for the electrical equipment industry, material costs and outsourcing costs are important variable factors directly linked to profitability. As a risk mitigation measure, the Group secures multiple suppliers and subcontractors and reviews procurement timing in line with demand trends.

Since overseas subsidiaries procure some raw materials from Japan, a stronger yen or weaker foreign currency could increase procurement costs, leading to a decline in profit margins and product competitiveness. In addition, since items denominated in local currencies, such as sales, expenses, and assets of overseas subsidiaries, are translated into yen when preparing consolidated financial statements, fluctuations in the translation rate affect the overall financial condition. As a countermeasure, the Group continuously monitors foreign exchange trends and implements hedges through forward exchange contracts and similar transactions.

Sankosangyo (Malaysia) SDN.BHD. operates in Malaysia, and if unforeseen events occur, such as changes in local political and regulatory circumstances or deterioration of the labor environment, issues such as delays in raw material and parts procurement or production could arise, potentially adversely affecting business performance and financial condition. As a risk mitigation measure, the Group gathers information on socioeconomic, political, and regulatory trends through its local subsidiary, and has established a system to respond to matters requiring action in cooperation with the local subsidiary and outside experts.

While the Group has adopted a policy of nurturing and expanding new businesses, if intensifying price competition, rapid technological innovation, or sudden changes in market needs force the Group to downsize or withdraw from new businesses, this could have a significant impact on business performance. As a countermeasure, the Group seeks to reduce risk through prioritization based on selection and concentration in development and sales development, as well as through regular monitoring and sharing and discussion of the situation.

As the Group positions human resources as its most important management resource, the outbreak of a global pandemic could significantly disrupt the production activities of employees and business partner companies, potentially affecting business and management activities as a whole. As countermeasures, the Group appropriately monitors WHO and Japanese government guidelines, strengthens hygiene measures at each business site and factory, refrains from business travel to areas where infectious diseases are occurring, and develops work-from-home environments according to the level of outbreak.