AWA PAPER & TECHNOLOGICAL COMPANY, Inc.

The Group, whose core businesses are automotive-related materials and water treatment-related materials, may be significantly affected in sales and profit by trends in energy and petroleum-related raw materials due to instability in the Middle East, as well as global turmoil stemming from the political and economic management of the U.S. government. In response, the Group is strengthening collaboration with overseas consolidated subsidiaries, developing products that reduce environmental impact, strengthening the supply chain through optimal location production, and enhancing manufacturing capacity for reverse osmosis membrane support paper through the operation of the new Komatsushima Plant.

The Group depends on North America, South America, and Europe for wood pulp and linter pulp, its main raw materials, and on the Middle East region for energy and petroleum-related products. Unstable production at suppliers, exchange rate fluctuations, human rights issues, and other factors could disrupt the supply chain, potentially leading to production stoppages or an inability to supply customers stably. In addition to considering alternative materials, diversifying procurement sources through multiple purchasing, and securing appropriate inventory levels, the Group conducts regular human rights risk assessments to manage risk.

In water treatment-related materials, there is a risk of a significant decline in market share due to new entrants and aggressive sales offensives by existing competitors, while in automotive-related materials, there is a risk that a pronounced slowdown in EV adoption could significantly reduce demand for insulation materials and other products. In response, the Group is promoting the provision of high-value-added products in water treatment-related materials and diversifying its business portfolio through the creation of new businesses and expansion of business domains in automotive-related materials.

As all domestic production sites are concentrated within Tokushima Prefecture, natural disasters such as tsunamis from large-scale earthquakes, major typhoons, and abnormal droughts, or the outbreak of an infectious disease pandemic, could cause a significant decline in production capacity and substantial costs for facility restoration, potentially adversely affecting business performance. The Group has formulated and regularly reviews its BCP (Business Continuity Plan), and has established a safety confirmation system, stockpiled supplies, and conducts regular drills, as well as implementing infection prevention measures through the promotion of remote work and DX utilization.

The Group conducts manufacturing, sales, and R&D activities through its consolidated subsidiary in Thailand, and provides sales support through its representative office in China. If uncertainties such as legal regulations, economic conditions, political instability, or pandemics materialize in these countries, business performance could be adversely affected. In addition to information gathering and strengthened management control based on the affiliated company management regulations, the Group works to strengthen governance and reduce operational risk through parent company officers concurrently serving as officers of overseas subsidiaries and the dispatch of executive personnel.

Due to the declining working population associated with the falling birthrate and aging population, an increase in mid-career resignations, and declining engagement, there is a risk of disruption to the succession of advanced technology and know-how and to the enrichment of human capital, which could affect business performance and stable growth. The Group is focusing on year-round recruitment of new graduates and mid-career hires with specialized expertise, the introduction of an executive talent development program, and improving engagement through the promotion of work-life balance, health management, and revisions to personnel systems.

If serious compliance violations occur, such as significant harassment, violations of labor laws, human rights issues, or serious legal violations related to industrial waste or factory wastewater pollution, administrative sanctions could halt production activities and damage social credibility, potentially having a material impact on business performance. The Group works to prevent such incidents through daily morning meetings to communicate corporate ethical standards, the establishment of internal reporting regulations, regular compliance awareness surveys, and enhanced harassment prevention education.

If quality defects or fraud occur in products for domestic and overseas customers, this could result in a loss of credibility, damage to corporate value, and claims for damages, potentially having a material impact on business performance. Under its quality policy, the Group engages in QMS activities with the participation of all employees, and works to reduce recurrence risk and prevent occurrence through sharing issues at quality liaison meetings, analyzing the mechanisms behind defects, and horizontally deploying countermeasures to similar processes.

In addition to the risk of declining social evaluation if sustainability targets such as CO2 emission reduction and reduced use of non-fossil energy are not achieved, the progression of environmental destruction of forests, rivers, and other resources poses a significant risk to business development. The Group has set a target of reducing CO2 emissions by 37% by fiscal 2030 compared to fiscal 2014, and is working toward realizing a sustainable society through EMS certification acquisition, establishment of green procurement standards, and strengthened collaboration with supply chain partners.

In addition to the risk of leakage of personal information, business information, and confidential information by employees, cyberattacks resulting from system failures, computer virus infections, or unauthorized access could have a material impact on business performance, financial condition, and social credibility. The Group has established a basic information security policy and personal information protection policy, maintains its integrated security system up to date, has taken out cyber insurance, and thoroughly disseminates awareness through education and training.