TAKASHIMA & CO.,LTD.

The Building Materials segment is significantly affected by fluctuations in private capital investment, public works, and new housing starts, while the Industrial Materials and Electronics & Devices segments face the risk of reduced production by customers due to deteriorating overseas economic conditions, particularly in Asia. In the consumer goods field, sluggish personal consumption also affects business performance. The Group addresses changes in economic conditions by reviewing sales strategies as needed.

Fierce price competition is unfolding in nearly all industries in which the Group operates, with competitors continuously introducing low-priced, high-performance products. Price pressure may lead to reduced order opportunities and lower profit margins, potentially affecting business performance and financial condition. The Group strives to build a structure not solely dependent on price competition by creating added value through the provision of unique solutions.

The Group engages in overseas import and export transactions and foreign currency-denominated transactions at overseas locations, and fluctuations in exchange rates may affect business performance and financial condition. It is impossible to completely eliminate the impact of exchange rate fluctuations, and risks may arise in either a yen depreciation or appreciation scenario. The Group works to mitigate the impact of fluctuations through hedging measures such as forward exchange contracts.

The Group makes investments in specific business partners for the purpose of maintaining long-term business relationships, and impairment losses arise when the investment value declines other than temporarily. During the fiscal year under review, the Group recorded valuation losses on investment securities and valuation losses on shares of affiliated companies following the commencement of bankruptcy proceedings of DG Capital Group Co., Ltd., an investee, and the difficulty in continuing operations of DG Takashima Co., Ltd., a joint venture company. The Group intends to continue periodically verifying investment value and determining the appropriateness of continued investment going forward.

The Group recognizes substantial amounts of goodwill and intangible assets arising from corporate acquisitions, and there is a risk that impairment losses will arise if the initially expected results are not achieved due to changes in the business environment or other factors. The recording of impairment losses directly affects business performance and financial condition as a loss for the relevant period. The Group believes the current values appropriately reflect business value, but continuous monitoring of changes in the external environment is necessary.

During the fiscal year under review, it was confirmed that at DG Takashima Co., Ltd., an equity-method affiliate, loans provided by the Company were fraudulently diverted to a related company of the counterparty. This matter is a serious issue concerning the effectiveness of the Group's internal control systems, and there are concerns about its impact on business performance and financial condition. The Group is currently proceeding with a detailed investigation of the facts while working to review its internal control systems and formulate measures to prevent recurrence.

Policy changes such as reductions in the surplus power purchase price (for residential use) and the feed-in tariff (for industrial use) set by electric power companies, delays in the acceptance of renewable energy applications, and output curtailment regulations may affect demand related to solar power generation. Policy trends are beyond the Group's control, and there is a risk that they could adversely affect business performance and financial condition. The Group addresses this by developing and implementing sales strategies in response to policy changes.

If a business partner faces financial difficulties due to market fluctuations, industry restructuring, or other factors, this may affect business performance and financial condition through the inability to collect accounts receivable or reduced transactions. In particular, during periods of industry restructuring, chain reactions affecting multiple business partners may also be anticipated. The Group addresses this by implementing protective measures according to the creditworthiness of its business partners.

The Group holds numerous trade secrets related to technology, sales, and business operations, and if information leakage or unauthorized acquisition or use by third parties occurs due to unforeseen circumstances, this may affect business performance and financial condition through a decline in competitiveness or loss of trust. The Group has established a specialized organization for information systems and implements information security measures based on the latest technological trends.

If the establishment, development, and operation of internal control systems fail to keep pace with business expansion or diversification, appropriate business operations may become difficult, potentially affecting business performance and financial condition. During the fiscal year under review, a fraudulent outflow of loan funds occurred at DG Takashima, making the strengthening of governance across the Group an urgent matter. The Group continues to establish, develop, and operate internal controls to ensure the appropriateness of operations and the reliability of financial reporting.