SAKURAJIMA FUTO KAISHA,LTD.

Coal, the main cargo of the Bulk Cargo Segment, is primarily used as fuel for thermal power plants; however, changes in energy policy by the government and local authorities in response to global warming countermeasures, or shifts in business partners' policies, could reduce handling volumes. Coal cargo handling is a core business of the Group, and a decrease in handling volume would have a direct impact on operating results. As countermeasures, the Group is strengthening relationships with existing business partners to diversify the cargo it handles and is pursuing new IR-related business opportunities at the Port of Osaka.

The Group operates specialized businesses in the special cargo port district of the Port of Osaka as an independent entity not affiliated with any corporate group. Because the cargo it handles centers on raw materials and energy resources essential to the industrial economy, the Group tends to have a relatively high degree of revenue dependence on specific business partners. Significant changes in the business strategies of such partners, or major shifts in domestic industrial policy or industrial structure, could affect business performance and financial condition. As a countermeasure, the Group is promoting business diversification through diversifying the types of cargo handled and developing new businesses.

In the Liquid Cargo Segment and Logistics Warehouse Segment, the Group has entered into long-term usage contracts with business partners that use tanks and warehouses as logistics bases. However, changes in business partners' management strategies in response to shifts in the business environment could result in early termination of contracts or non-renewal upon expiration. Should such situations arise, subsequent business performance could be adversely affected. The Group addresses this risk by developing favorable relationships with existing business partners.

Domestic and international conditions—such as sharp fluctuations in foreign exchange rates, economic sanctions stemming from the conflict in Ukraine, the shift toward protectionist policies under the U.S. administration, and fluctuations in energy and resource prices due to instability in the Middle East—could affect the business activities and management strategies of major business partners, thereby impacting the Group's operating results. The Group's core business is logistics for imported cargo destined for power companies and major manufacturers with business bases in western Japan, giving it direct exposure to these macro risks.

Since the Group's business facilities are concentrated in a single location at the Port of Osaka, a large-scale typhoon or earthquake could halt all business activities. While the typhoon of September 2018 did not affect business activities, it caused damage equivalent to ¥280 million. Regarding earthquakes, insurance payout amounts are subject to limits, which could affect business performance. Although all facilities are insured, a portion of earthquake risk remains uncovered by insurance.

Regarding the large-scale cargo handling equipment (cranes) used for Bulk Cargo operations, the Group has established a system of constant inspection by a dedicated department, early replacement of parts, and stockpiling of key core components. Nonetheless, unexpected malfunctions due to unforeseen causes could affect business activities. The concentration of facilities in a single location is a factor that heightens this risk, as alternative means are limited in the event of a malfunction.

Based on the Fourth Medium-Term Management Plan launched in FY2025 (ending March 2025), the Group aims to expand earnings through continued capital investment. However, if capital expenditures cannot be implemented as originally planned due to changes in economic trends or the business environment, this could hinder future business development. In addition, necessary funds are primarily raised through borrowings from financial institutions, and prolonged underperformance or extreme tightening of financial markets could prevent the Group from raising funds at the desired timing or on the desired terms.

The Group holds substantial fixed assets in the course of its business activities, and future declines in the market value of fixed assets or reduced profitability of asset groups due to economic changes could result in impairment losses. In particular, large-scale cargo handling equipment and specialized facilities such as tanks and warehouses have low versatility, making the risk of asset value impairment relatively high in the event of changes in the business environment.

Maintaining and enhancing competitiveness requires securing and developing capable personnel with specialized knowledge and skills in each department. In addition to regular recruitment, the Group utilizes recruitment agencies for mid-career hiring and enhances in-house training programs. However, if the Group is unable to secure personnel well-versed in its operations or is unable to develop them as planned, this could affect business activities. Personnel well-versed in specialized operations such as port cargo handling and liquid cargo are limited in supply in the labor market, making it particularly difficult to secure such talent.

The Group's business is operated under licenses and permits based on the Port Transportation Business Act, the Warehousing Business Act, the Fire Service Act, the Freight Transportation Business Act, and other laws and regulations. If these laws are amended or abolished, or if new legal regulations are introduced, the degree of freedom in business activities would decrease, and new costs would likely arise, potentially affecting business performance and financial condition. In addition, regarding business site land leased from the City of Osaka, use for purposes other than those stipulated in the contract requires the consent of the City of Osaka, which constrains flexibility in business development.