itamiarts inc.

A significant portion of traffic to the Company's e-commerce site depends on organic search, and since KPI changes to algorithms such as Google's are not publicly disclosed, there is a risk that inflow could decline sharply if large-scale changes are made. Because timely and appropriate responses are difficult, this could have a direct impact on net sales.

As of the end of the fiscal year under review, the balance of interest-bearing debt (including lease obligations) was ¥2,049 million, and the interest-bearing debt dependency ratio was at a high level of 56.2%. This is mainly attributable to borrowings related to the Nanukaichi plant, completed in FY2021 (ended January 2021); if current interest rate levels rise significantly, the interest burden would increase, potentially adversely affecting the financial position and operating results.

While the BtoB e-commerce market for POP displays and outdoor advertising is on an expanding trend, there is a risk that market growth could slow due to reduced corporate advertising spending amid an economic downturn or tightening of regulations related to the internet and e-commerce. If a slowdown in customer acquisition coincides with intensified competition, this could lead to a slower pace of sales growth or an increase in marketing expenses.

Representative Director and President Kazuaki Itami plays an important role in determining and executing management policy and business strategy. Although information sharing and delegation of authority through the Board of Directors and other bodies are being advanced, if he becomes unable to continue management execution or if the reliance on him is not resolved, this could affect business activities as well as the financial position and operating results.

The Company's business is subject to multiple laws and regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Copyright Act, the Act on Specified Commercial Transactions, and the Provider Liability Limitation Act. If new laws are enacted or existing laws are strengthened, this could constrain business operations, potentially affecting the financial position and operating results. The Company strives to ensure compliance through internal training and organizational structuring, but responding to changes in the regulatory environment remains a challenge.

The Company's production and logistics facilities are concentrated in Okayama City, and there is a risk that large-scale natural disasters such as fires, earthquakes, or typhoons could cause physical damage to facilities, buildings, and raw materials, as well as harm to employees. Damage to social infrastructure could also make it difficult to secure raw materials and merchandise, and the business continuity risk from this facility concentration is high.

The Company holds and manages confidential information and personal information entrusted by clients, and has taken measures such as obtaining Privacy Mark certification and conducting employee training. However, if information leakage or misuse occurs due to employees or outsourced companies, the Company could lose social credibility as a business, potentially having a material impact on the financial position and operating results.

The Company outsources delivery operations to transport companies and offers free delivery to customers who purchase above a certain amount. If delivery costs rise, the Company states it will consider passing on the cost, but a delayed response could lead to a decline in profit margins, potentially affecting the financial position and operating results.

If price pass-through is delayed when the prices of raw materials such as fabric for banner flags and banners surge, this could squeeze profitability. In addition, although the Company partially hedges foreign exchange risk with derivative contracts for merchandise procured in foreign currency from overseas, complete avoidance is difficult, and exchange rate fluctuations could affect the financial position.

Banner flags, banners, and vertical banners, the Company's core products, account for approximately 75% of net sales, indicating a high degree of dependence on specific products. If market conditions deteriorate or demand for these products declines, this could have a significant impact on overall net sales. Although current market conditions remain stable, this is recognized as a future risk.