TOKYO SANGYO CO., LTD.

Depending on domestic and overseas economic conditions and business trends, there is a possibility of declining demand for handled products or price fluctuations due to deteriorating supply-demand balance. The Group strives to identify manufacturers with high technological capabilities and unique (one-only) products, and to expand its product lineup and customer base through M&A; however, if these risks materialize, they may adversely affect the Group's business results and financial condition.

Since its founding, the Group has centered its business on the sale of Mitsubishi Heavy Industries, Ltd. and Mitsubishi Electric Corporation products, and in the Electric Power Business segment, it is involved as an agent-like intermediary in the delivery and repair work of power generation plants for the electric power industry. Changes in capital investment trends in the electric power industry or in the manufacturers' sales policies could significantly affect business results. The Group is working, in accordance with its medium-term management plan, to expand its customer base and business areas to reduce this dependence.

The Group extends credit to customers in the form of trade receivables, advance payments, loans, and guarantees, and cannot completely eliminate the risk that a customer may become unable to pay. Although the Group has established credit management systems based on its "Product Transaction Regulations" and "Authority for Duties Standards Table," as well as a monitoring system through risk assessment meetings, if this risk materializes, it may adversely affect the Group's business results and financial condition.

Large-scale machinery and equipment delivery projects and construction projects tend to be concentrated at the interim period-end (September) or fiscal year-end (March), and the timing of revenue recognition may fluctuate depending on the timing of customer acceptance inspections, etc. If delivery or acceptance inspection of a project planned for the period-end is delayed to the following period, it may adversely affect the business results for that period, such as failing to meet plans.

In its import and export businesses with countries around the world, there exists country risk arising from political and economic changes, major revisions to laws and regulations, and the occurrence of terrorism, war, or infectious diseases. If the deterioration or prolongation of the situation in Russia/Ukraine or the Middle East causes price surges, logistics disruptions, or foreign exchange impacts affecting suppliers and customers in Europe and elsewhere, it may adversely affect the Group's business results and financial condition.

Foreign currency-denominated operating receivables and payables arising from import/export transactions are exposed to foreign exchange fluctuation risk. The Group seeks to mitigate this risk through currency-related derivative transactions such as forward foreign exchange contracts, but there is no guarantee that all risks can be avoided. Sudden fluctuations in foreign exchange rates may adversely affect the Group's business results and financial condition.

There is a risk of leakage of confidential corporate information or personal information due to unauthorized external access or computer virus intrusion, and a risk that information systems may become inoperable due to damage to information system equipment or communication line troubles caused by natural disasters or accidents. The Group is working to establish information management regulations and thoroughly implement crisis management measures, but depending on the scale of damage, this may result in reduced operational efficiency and adversely affect business results and financial condition.

The Group conducts business investments such as M&A and the establishment of affiliated companies with the aim of achieving sustainable growth and improving profitability, and manages risk based on internal regulations. However, the Group may be affected by factors beyond its control, such as the business results and financial condition of business partners. As a result, the Group may suffer significant losses, which could adversely affect its business results and financial condition.

The Group is subject to various laws and regulations, including the Construction Business Act, the Foreign Exchange and Foreign Trade Act, the Export Trade Control Order, and environmental laws and regulations. If these laws and regulations are amended, new regulations are introduced, or the Group is found to be in violation of them, it may become difficult to continue certain businesses or transactions. The Group has established a Legal Affairs Department and Compliance Committee, and has built a legal compliance system based on the "Tokyo Sangyo Group Code of Conduct." However, if fraud or a corporate scandal involving officers or employees occurs, there is a risk of reputational damage or direct losses.

For construction projects for which revenue is recognized over a certain period, there is inherent uncertainty in estimating the total construction costs used to measure the progress of completion. If changes in the estimation assumptions due to rising raw material costs or specification changes are not reflected in a timely manner, this may affect the amount of revenue recognized. The Group strives to ensure the reasonableness of its estimates, but there is a risk that errors in judgment could adversely affect the Group's business results for the fiscal year under review.