KANSEKI CO., LTD.

Products handled by the Company, including those at home centers, are difficult to differentiate from competitors' offerings, and competition in regional markets is expected to intensify. Depending on the actions of new market entrants, price competition may progress beyond the Company's expectations, potentially leading to declines in sales prices, reduced net sales, and lower profit margins. The Company addresses this by differentiating itself through proprietary services and enhancing its competitiveness.

The Company holds a large volume of customers' personal information through membership services such as "Smile Card," "Smile App," and "WILD-1 Members Card," as well as through company-organized events and travel bookings. If an information leak occurs due to causes beyond expectations, it could have a material impact on business performance and business development. The Company addresses this risk by establishing "Personal Information Handling Regulations" and developing systems for the use and management of information.

The opening and expansion of home center stores are subject to regulation under the "Large-Scale Retail Store Location Act." For store openings or expansions exceeding 1,000 square meters of sales floor space, environmental measures are mandated, including securing parking facilities, addressing noise and traffic congestion, waste disposal, and consideration for the surrounding townscape. If store openings cannot be realized as planned due to regulations under this law, it could affect future business performance. The Company addresses this by formulating store opening plans that fully account for environmental measures.

The Company procures much of the funds for store openings and renovations through borrowings, and the ratio of borrowings to total assets remains at a high level. If interest rates rise more than expected, it could result in increased interest expenses and higher future funding costs, adversely affecting business performance. The Company addresses this by monitoring interest rate trends closely while optimizing its fund procurement.

The Company applies the "Accounting Standard for Impairment of Fixed Assets," and depending on future trends in business performance and asset market values, it may recognize impairment losses. In addition, when closing unprofitable stores, the Company may need to record provisions for penalties on leased properties or for the removal of fixed assets, which could affect business performance and financial position. While the Company's basic policy is to make effective use of its owned assets, it continuously monitors profitability conditions.

If a major earthquake, typhoon, or other natural disaster, significant weather abnormality, large-scale infectious disease outbreak, or unforeseen accident occurs, it could not only reduce net sales due to a decline in customer traffic, but also physically damage stores and other facilities, thereby impeding sales, distribution, and procurement activities. Similarly, events affecting domestic and overseas business partners or the procurement and distribution network (such as epidemics, riots, or terrorism) could also disrupt business operations. The Company takes measures to minimize such impacts.

At the end of the fiscal year under review, the ratio of borrowings to total assets stood at a high level of 45.8%, which restricts the use of cash flow and could lead to increased expenses in the event of rising interest rates. Loan agreements with multiple financial institutions include financial covenants, and if net assets or operating income fall below certain levels, there is a risk of losing the benefit of the term (acceleration of repayment obligations). A deterioration in financial condition could also place the Company at a competitive disadvantage relative to competitors and give rise to contractual issues with business partners.