SANYEI CORPORATION

The Group is exposed to a variety of risks, including changes in political, economic, and social conditions in countries around the world, conflicts between nations, natural disasters, and the spread of infectious diseases. In recent years, heightened geopolitical tensions and instability in the international trade and energy environment have become particularly pronounced, and these could have a material impact on the Group's business and performance. As countermeasures, the Group has established a system in which the Country Risk Committee assesses global conditions and examines response measures, while a standing Crisis Management Headquarters secretariat, operating under the Basic Crisis Management Manual, conducts preparatory activities in normal times and can immediately activate the BCP in the event of a crisis.

Rising labor mobility, a shrinking working population due to the declining birthrate and aging society, and diversifying needs regarding work styles could impede the Group's ability to secure and develop the human resources that form the foundation of its management resources, which could significantly affect business activities as well as operating results and financial condition. As countermeasures, the Group promotes training programs that support autonomous learning, initiatives that encourage employees to take on challenges, the development of a post-retirement re-employment system, expansion of eligibility for the shortened working hours system for childcare, and the active recruitment of external talent through an enhanced career-track hiring system.

As the Group strengthens its EC business as a pillar of its growth strategy, the risk of leakage of personal and customer information obtained through sales activities is rising, which could result in substantial liability for damages, response costs, and a decline in creditworthiness; the year-on-year increase in cyberattack incidents is also raising information security risk. As countermeasures, the Group oversees its management framework through regular meetings of the Information Management Committee, transfers risk through cybersecurity insurance coverage, has established alternative procedures for critical operations and secured alternative sites, and maintains a backup system for core system data.

While measures to address climate change could become an impediment to economic development, there is also a risk that human rights violations such as child labor and excessive working hours, or environmental destruction, occurring at supplier and partner factories could damage the social credibility of the Company and its business partners. As countermeasures, the Company has established a Sustainability Committee that gathers information and conducts preliminary deliberations to support the Board of Directors' policy decisions, and is committed to thorough legal compliance, including the protection of human rights, when selecting supplier and partner factories.

As the Company manufactures and sells a wide range of products both domestically and internationally, many transactions involve multiple parties, and even with preventive measures in place, violations of laws and regulations may occur as a result. Significant changes in laws and regulations could also make it difficult to continue certain transactions or require substantial costs to address. As countermeasures, the Legal Risk Committee gathers information on legal amendments and oversees compliance status, while Compliance Programs (CPs) are formulated and operated for each law closely related to the Group's business, fostering a culture of legal compliance awareness among employees.

In the Group's global business handling everyday household goods, the supply chain—from raw material procurement to the establishment of sales networks—forms the foundation of its operations, but various factors such as changes in the external environment leading to soaring raw material and transportation costs, or fluctuations in tariff rates, could affect the business. As countermeasures, the Group works during normal times to diversify procurement routes, switch to alternative materials, and diversify sales routes, visualizes the impact on the supply chain, and has established a system to immediately activate the BCP when risks materialize.

The Group is exposed to various foreign exchange fluctuation risks associated with import and export transactions, and significant fluctuations in exchange rates could undermine the price competitiveness of products or cause changes in the valuation of foreign currency-denominated receivables and payables, potentially having a significant impact on operating results. As a countermeasure, the Market Risk Committee regularly monitors exchange rate fluctuations and implements risk hedging through forward exchange contracts as necessary.

The Group borrows funds denominated in yen and US dollars to cover working capital needs, and given the recent upward trend in market interest rates, a sharp rise in interest rates could significantly affect operating results and financial condition. As countermeasures, the Group works to curb interest rate fluctuation risk by reducing group-wide outstanding borrowings through the use of CMS, utilizing long-term fixed-rate borrowings, and appropriately introducing risk hedging tools such as interest rate swaps within the scope of actual demand.

In addition to working capital needs for work-in-process, product inventory, and capital expenditures, the Group must secure liquidity to support cash flow for business continuity under crisis management conditions; failure to respond to a sudden increase in funding needs could hinder business continuity. As countermeasures, the Group strengthens relationships with its financial institutions and diversifies its fundraising methods, while also establishing a medium- to long-term multi-currency commitment line with its main banks to hedge foreign currency liquidity risk when raising US dollar funds.

Credit risk exists with respect to trade receivables and other amounts owed by domestic and overseas business partners, and if a partner's creditworthiness deteriorates and difficulties arise in fulfilling its obligations, this could affect the Group's operating results and financial condition. As countermeasures, the Group conducts credit investigations of each business partner in accordance with its credit management regulations, carefully sets and periodically reviews credit limits, and, where necessary, secures trade credit insurance to protect accounts receivable and other assets.