Sangetsu Corporation

There is a risk that business opportunities in the Interior and Exterior businesses may be lost due to a decline in newly started housing and non-residential construction associated with the declining birthrate and aging population, as well as changes in economic conditions and government housing policy. Amid an expected contraction of the domestic market, the Group has formulated the "Medium-Term Management Plan 2029" and is strengthening its earnings base by focusing on growth areas, optimizing the product mix, and expanding overseas business.

There is a risk that supply volumes may decrease and delivery times may be delayed for key products such as Wall Covering (Wallpaper), Flooring, and Fabric (Curtains, Upholstery) due to soaring prices of petrochemical raw materials such as crude oil and naphtha, driven by heightened tensions in the Middle East. Increases in manufacturing and logistics costs are also becoming serious, and the Company is implementing price revisions of approximately 18% to 30% for major products effective for orders received from July 1, 2026, in order to pass on the cost increases and secure a stable supply system.

There is a risk that delays in reducing GHG emissions may lead to increased carbon tax burdens, and that insufficient response to chemical substance regulations such as PVC and inadequate expansion of low-environmental-impact products may result in a decline in social credibility and loss of business opportunities. Amid progressing standardization of non-financial information disclosure by the ISSB and SSBJ, the Group has set targets of achieving carbon neutrality in Scope 1 & 2 (on a non-consolidated basis) and a 55% reduction (Group-wide, compared to fiscal 2021) by fiscal 2029, and is promoting the introduction of renewable energy and the development and sales system establishment of low-environmental-impact products.

In the overseas businesses operated in North America, China, Hong Kong, and Southeast Asia, if political instability, the spread of infectious diseases, soaring raw material prices, rising transportation costs, impairment losses on fixed assets, or difficulty in securing management personnel occur, this could have a material impact on business results and financial condition. The Group strives to prevent and minimize overseas business risks through the formulation of BCPs, establishment of post-investment business management systems, implementation of appropriate price revisions, and development of local management personnel.

There is a risk that if serious quality problems or complaints occur due to insufficient verification during product development or defects in the manufacturing process, this could affect business performance and financial condition through a decline in brand image and the occurrence of damages costs, among other factors. The Group works to prevent quality problems in advance through the operation of a product design review process (DR-A/B/C), utilization of a "Required Quality Confirmation Sheet," regular audits of supplier factories, and establishment of a 4M change management system for contracted manufacturing.

There is a risk that if product supply is disrupted due to production troubles, disruption to raw material procurement caused by geopolitical risks, or the bankruptcy or withdrawal of suppliers, this could affect business performance and financial condition. The Group is strengthening its stable supply system through the establishment of a three-location system in eastern and western Japan, including the new Hiroshima plant of group company Creanate Corporation, which began operations in October 2025, ensuring sufficient inventory of major products and preparing substitute products, and strengthening supplier management through CSR questionnaires and on-site inspection visits.

There is a risk that changes in the environment surrounding logistics—such as the "2030 Logistics Problem" caused by driver shortages associated with the declining birthrate and aging population, the risk of legal violations and penalties due to inadequate response to the revised "Act on Improving Logistics Efficiency" (effective April 2026), and the expansion of regulatory targets under the Act on Proper Transactions for Specified SME Subcontracting—may make it difficult to maintain a stable delivery system. The Group made logistics company SDS Co., Ltd. a group company in April 2025 to promote the in-house handling of logistics operations, and is also proceeding with measures such as the appointment of a chief logistics officer, formulation of medium- to long-term plans, labor-saving and systemization of cargo handling operations, and improvement of loading efficiency.

There is a risk that intensifying competition for talent, driven by the declining domestic working-age population and increasing labor market fluidity, could result in delays in the execution of business plans and affect business performance and financial condition if the Company is unable to recruit and develop necessary personnel as planned or if excellent personnel leave the Company. As personnel measures linked to the "Medium-Term Management Plan 2029," the Group is working to strengthen its personnel foundation through the development of management personnel and global talent, recruitment of highly specialized personnel, deepening of DE&I, and improvement of organizational issues utilizing engagement surveys.

There is a risk that if cyberattacks, computer viruses, hacking, system failures, information leaks, or similar incidents occur, this could result in a loss of social trust and the incurrence of substantial costs, affecting business performance and financial condition. The Group implements multi-layered measures, including the appointment of an executive officer responsible for cybersecurity, establishment of a Cybersecurity Management Office, collaboration with CSIRT and SOC, introduction of an intrusion detection service, enrollment in cybersecurity liability insurance, and regular employee education and training.

There is a risk that unexpected amendments to laws and regulations covering a wide range of areas, including product liability, intellectual property, the environment, and labor affairs, may restrict business operations. In addition, if other companies manufacture similar products or third parties file lawsuits alleging infringement of intellectual property rights, losses such as litigation costs and damages may occur. The Group addresses these risks through maintaining a system for continuously monitoring domestic and international laws and regulations, actively filing for and acquiring patents, designs, and trademarks, monitoring competitors' intellectual property information, and building a collaborative framework with external experts such as patent attorneys and lawyers.