SENSHU ELECTRIC CO.,LTD.

Since electric wires and cables, the company's main products, are used for capital investment, changes in domestic economic conditions, construction demand, and corporate capital investment trends directly affect business performance. As a countermeasure, the company avoids dependence on specific industries and aims to minimize the impact on performance by expanding sales across a wide range of industries, including construction, machinery equipment, automobiles, LCDs, and semiconductor manufacturing equipment.

Fluctuations in the international market price of copper, the main raw material for electric wires and cables, can cause significant changes in procurement prices, and if these cannot be immediately passed on to sales prices, profit and loss may be adversely affected. Furthermore, even when copper price fluctuations do not affect profit and loss, they can be a factor causing significant fluctuations in net sales. As countermeasures, the company mandates through internal regulations early inventory turnover, expanded sales of products unaffected by copper prices, and simultaneous ordering to suppliers upon receipt of orders for forward contracts (copper volume hedging).

The Group holds securities, including shares of business partners, for the purpose of maintaining and strengthening relationships with business partners and for fund management purposes, and a sharp deterioration in stock market conditions could lead to a decline in profit and loss and a decrease in net assets. As a countermeasure, the company works to reduce the risk of market value decline by regularly ascertaining market values and the financial condition of issuers, and continuously reviewing its holdings in light of market conditions and relationships with business partners.

The company holds tangible fixed assets related to each business location, and impairment losses may occur due to continued deterioration in operating income/loss or a significant decline in the market price of land, a key asset. As a countermeasure, the company thoroughly ensures that business site assets are acquired at appropriate prices through third-party appraisals and comparison with business plans at the time of acquisition, and adopts a policy of appropriate accounting treatment in accordance with accounting standards.

If quality defects occur in products sold (trading function), the company may face claims for damages through litigation, and quality defects in processed products (manufacturing function) require the company to conduct its own investigation into the cause and implement recurrence prevention measures; either case could adversely affect business performance. As a countermeasure, based on the concept of upstream management, the company conducts quality assurance system audits before placing orders with suppliers, and for processed products has established a system in which the Quality Assurance Department is involved from the order-receiving stage, while continuously confirming and improving quality assurance systems at overseas locations.

The company has overseas locations in China, Southeast Asia, and North America, and changes in economic trends, political and social conditions, and legal and regulatory changes in each region could adversely affect business performance and financial condition. As a countermeasure, the company has established a system centered on the International Headquarters and the Affiliated Companies Management Department that collaborates with legal and accounting experts to respond swiftly to changes, and has established an "Export Control Office" within the Administration Headquarters, independent from the sales departments, to conduct objective export control.

Although the company strives to prevent information leaks and respond to external system intrusions under its "Basic Policy on Information Security," unexpected events causing information system outages or information leaks could adversely affect business performance and financial condition. As a countermeasure, the company has strengthened its response system in the event of an emergency by taking out cyber insurance, and implements risk reduction initiatives and regular internal training.

If business locations suffer human or physical damage due to a large-scale earthquake, natural disaster, infectious disease, or similar event, business performance could be adversely affected due to suspension or delay of business activities and product supply to customers. As a countermeasure, the company formulated a Business Continuity Plan (BCP) in October 2020, which is reviewed as necessary at the Risk Management Committee held every July, and has established a system for swift and flexible response based on the basic policy of prioritizing the safety of employees' lives, reducing physical damage, and achieving early business recovery.