SANKYO FRONTIER CO.,LTD.

The Group holds a large volume of rental assets such as unit houses, and there is a risk that these assets could become obsolete due to a decline in demand caused by sudden changes in the business environment, technological innovation, or the emergence of competing products. If obsolescence progresses, the Group may be forced to record impairment losses or dispose of assets, which could have a significant impact on business performance. Although the Group addresses this risk by making investments while considering demand trends, there are limits to how well it can respond to abrupt changes.

Increases in steel product prices due to soaring iron ore prices, as well as rises in material procurement costs due to surging crude oil prices, may push up the manufacturing costs of unit houses and other products. Higher manufacturing costs directly squeeze profits, and if price pass-through to customers is difficult, profitability may decline. This is a structural risk in which business performance is affected by global resource price trends.

There is a risk that procurement could become difficult due to supply stoppages of materials for which suppliers are limited, or delays in material delivery caused by disruptions in overseas conditions. If procurement disruptions occur, production activities could be restricted, potentially affecting business performance through reduced order fulfillment capability and delivery delays. Materials with a high degree of supplier concentration are particularly vulnerable.

The earnings of the construction and civil engineering industry, the Group's major customer base, are linked to domestic construction investment trends such as public and private capital investment. If there is a substantial reduction in public works projects or a marked decline in private construction work, demand for the Group's services and products would decline. Since construction investment is affected by policy and business cycles, there is a risk that changes in the external environment will directly impact business performance.

In the core Unit House Business, there is a risk that price competition with industry peers will intensify, leading to declines in product and rental prices. In addition, the introduction of new products and services by competitors could reduce the Group's industry market share. If price declines and market share erosion occur simultaneously, both sales and profit margins would be adversely affected.

As projects become larger, more complex, and longer in duration, changes in construction schedules may lead to revisions in projected sales, temporary excess inventory, and longer periods for fund collection. These factors can be sources of earnings volatility and can also affect the Group's financial position. With the increase in large-scale projects, the importance of project management and cash flow management is growing.

As the number of new and overseas customers increases, so does the number of transactions for which credit assessment is difficult, raising the risk of delayed fund collection. In addition, if contracts arise with broad scopes of compensation, the risk of liability claims increases, which could affect business performance. As overseas business expands, these risks are expected to become more likely to materialize going forward.

The Unit House Business is subject to regulation under relevant laws such as the Building Standards Act, the City Planning Act, and the National Land Use Planning Act, and the Group's major customers in the construction and civil engineering industry are similarly subject to such regulations. If these regulations are revised or abolished, or if new legal regulations are introduced, this could affect business operations and customer demand. There is also an inherent risk of costs arising from responding to changes in the regulatory environment.

Because the Group purchases some raw materials from overseas for the manufacture of unit houses and other products, a significant depreciation of the yen would raise manufacturing costs and affect business performance. In addition, as overseas business expands, significant fluctuations in local currency values or political instability in the countries where the Group operates could affect business performance and financial position. Foreign exchange risk exists on both the procurement cost side and the overseas business revenue side.