Shinsho Corporation

The Group conducts global business primarily in Japan as well as in the United States and Asia, and changes in the economic and business environments in these regions may affect its business results and financial position. The Group's structure is highly dependent on specific regions, making it susceptible to economic downturns and fluctuations in demand. The Annual Securities Report does not describe specific countermeasures.

The Company is an affiliate of Kobe Steel, Ltd., which holds 35.9% of voting rights through its group. The ratio of purchases from Kobe Steel to total purchases is high at 38.6%, and changes in Kobe Steel's management direction or procurement policy may directly affect the Group's business results and financial position. Although sales to Kobe Steel account for only 7.0% of total sales, the high dependency on purchases from Kobe Steel constitutes a structural risk.

The Group holds borrowings, and sharp fluctuations in interest rates may affect its business results and financial position. The Group works to mitigate fluctuation risk through the use of interest rate swaps, but hedges may not function sufficiently in periods of rapid interest rate increases.

The Group engages in overseas transactions denominated in foreign currencies, and fluctuations in exchange rates may affect its business results and financial position. Although the Group takes risk-avoidance measures such as forward exchange contracts, it is difficult to eliminate all such risk, and translation risk also exists with respect to foreign-currency-denominated assets and liabilities held by overseas consolidated subsidiaries.

Among the wide range of commodities handled by the Group, some are subject to price risk arising from market fluctuations. Sharp fluctuations in commodity prices may lead to trading losses or inventory valuation losses, which may affect the Group's business results and financial position. The Annual Securities Report does not describe specific hedging measures.

Credit risk exists with respect to trade receivables and other items owed by domestic and overseas business partners. Although credit management is conducted based on the "Credit Limit Regulations," if a business partner's credit standing deteriorates and problems arise in fulfilling its obligations, this may adversely affect the Group's business results and financial position through the occurrence of bad debt losses and other factors.

The Group holds marketable securities, primarily shares of business partners, and in a declining stock price environment, valuation losses on securities may be recorded, which may affect the Group's business results and financial position. Details of the scale and composition of the shares held are not disclosed in the Annual Securities Report, but it appears that cross-shareholdings are included.

The Group seeks to expand its business through the establishment of new companies and investment in existing companies, but if the corporate value of an investee declines, investment losses or impairment may occur, which may affect the Group's business results and financial position. Although reviews are conducted based on internal regulations, there is a risk that investment returns may fall short of expectations due to changes in the business environment.

The Group engages in trade transactions and overseas investments and loans, and bears the risk that changes in the policies or political and economic environment of counterparty countries may make it difficult to recover receivables and investments/loans. Although the Group responds carefully based on various information, if uncollectibility occurs in specific countries or regions, it may adversely affect the Group's business results and financial position.

The Group may become subject to litigation, disputes, or other legal proceedings in the course of its domestic and overseas business activities, the outcomes of which are unpredictable at this time. If such litigation or other matters are settled, they may adversely affect future business results and financial position through the payment of damages or suspension of operations, among other consequences.