KENSOH CO.,LTD.

The manufacture and sale of sign products, the Company's core business, is heavily dependent on trends in private non-residential construction investment. If demand exceeds production capacity, the Company risks losing business opportunities; if demand falls below capacity, it risks losing profit due to increased fixed costs. Because production is centered on individual made-to-order products, it is difficult to adjust for demand fluctuations through inventory, and a decline in construction investment could lead to a significant decrease in net sales. The Company is working to strengthen its earnings base by capturing demand outside the construction industry, but the situation in which the proportion of demand related to construction investment is overwhelmingly large continues.

The purchase price of stainless steel, the main raw material, fluctuates due to global market conditions for chromium and nickel, exchange rate trends, and domestic and international supply-demand conditions. If price increases beyond expectations cannot be absorbed through sales prices, this will directly squeeze profitability. In addition, if the Company is unable to procure the necessary quantity of stainless steel, product supply will be disrupted, leading to lost sales opportunities. The Company is working to stabilize raw material procurement, but the risk of global market fluctuations cannot be eliminated.

While the Company implements measures such as its own credit management, provisions for allowance for doubtful accounts, and insurance contracts for approximately 3,000 customers, if unforeseen events such as bankruptcy occur under uncertain economic conditions, there is a possibility that the collection of substantial receivables could be hindered. Given the large number of business partners, there are limits to individual management, and deterioration in the financial condition of a major customer could have a material impact on the Company's financial position and operating results.

Because production is centered on individual made-to-order products, there is a risk of variation in product quality, and if an accident caused by a product occurs, this could result in a loss of social credibility and substantial compensation payments. The Company strives to prevent this through the establishment of a Quality Assurance Department and strengthening of its quality control system, and also works to transfer risk by entering into product liability insurance contracts. However, damages not covered by insurance and sales stagnation due to reputational damage could affect the Company's financial position and operating results.

There is competition with other companies in the same industry in the sign market, and if competitors take the lead in new product development or manufacturing technology development, there is a risk that the Company's market share and profitability could decline. The Company strives to secure competitiveness through the establishment of a quality management system, continuous improvement, new product development, and cost reduction, but if it is unable to keep pace with the speed of technological innovation, this could have a material impact on its financial position and operating results.

The Company is subject to regulations such as the Construction Business Act, the Outdoor Advertisement Act, and various local government ordinances, and there is a trend toward strengthening legal regulations on sign products from the perspective of preserving scenery and prioritizing safety. In promoting its business, the Company is also subject to numerous laws and regulations related to antitrust, intellectual property, environment, and labor, and there is a risk of increased costs in responding to legal amendments and stricter regulations, or loss of social credibility due to litigation. The Company has established a compliance system and strives to comply with laws and regulations, but changes in the regulatory environment could have a material impact on its financial position and operating results.

Given the nature of the business, which requires a large amount of labor for product manufacturing, if the Company is unable to secure the necessary personnel due to rapid changes in the employment environment, this could lead to increased production costs and reduced manufacturing capacity. If a serious industrial accident occurs or problems arise in labor management, this could also have a material impact on the Company's financial position and operating results, and the Company positions human resource management as an important issue from a sustainability perspective as well.

Production capacity is concentrated in Hiroshima City and its surrounding areas, and if natural disasters such as earthquakes or floods, fires, power or communication outages, disruptions to the logistics network, or infectious diseases occur, this could disrupt product manufacturing and supply, having a material impact on the Company's financial position and operating results. The Company has established a two-factory system within Hiroshima City for the purpose of risk diversification, but the structural risk of concentration within the same metropolitan area remains.

If unforeseen large-scale natural disasters, changes in political and economic conditions, outbreaks of infectious diseases or epidemics, or social unrest such as terrorism or war occur, there is a risk that business activities will be restricted and product manufacturing and supply will be disrupted. Since these are caused by external environmental factors, they are difficult for the Company to control on its own, and if they occur, they could have a material impact on the Company's financial position and operating results.

If a system failure occurs due to a malfunction of communication network equipment, software defects, computer viruses, hacking, or similar causes, this could result in loss of social credibility, lost business opportunities, decreased competitiveness due to leakage of know-how, liability for damages, or substantial system recovery costs. The Company conducts regular backups and has established a system to monitor operational status, and also works to transfer risk by entering into cybersecurity insurance contracts.