OHISHI SANGYO CO.,LTD.

An economic downturn could lead to decreased demand for the four main products (Pulp Mould cushioning materials, film and synthetic resin, kraft heavy-duty packaging bags, etc.) and deteriorating market conditions due to intensified competition, which may affect business performance and financial condition. While the Group conducts business transactions dispersed across a wide range of industries and regions—including agriculture, livestock, and industrial products—the risk of a general decline in demand during economic downturns cannot be fully avoided. As a countermeasure, the Group promotes innovation activities such as new product development, functional improvements, and optimal packaging proposals to differentiate itself from competitors.

Prices of major raw materials and fuels such as kraft paper, plastic resin, film, LPG, and LNG fluctuate in line with oil prices and international waste paper market conditions, affecting business performance and financial condition. In particular, the risk of difficulty in procuring naphtha-derived raw materials has become apparent due to the escalating situation in the Middle East, and this is recognized as an area difficult to control through the efforts of a single company. As a countermeasure, the Group strives for stable procurement of raw materials and fuel through concentrated and diversified management of procurement sources and the use of long-term contracts.

The business, performance, and financial condition of overseas subsidiaries (three companies in Malaysia) are always subject to the risk that, even if the value in local currency terms remains unchanged, the value after conversion into yen may fluctuate due to exchange rate movements. The Group recognizes that the possibility of this risk materializing always exists, and seeks to mitigate its impact through the use of forward foreign exchange contracts and diversification of overseas product procurement sources.

The Group has production and sales bases in Malaysia (CORE PAX(M)SDN.BHD., ENCORE LAMI SDN.BHD., and FUSIONS TRADING MALAYSIA SDN.BHD.), and economic trends, political instability, and changes in laws and regulations in the countries where it operates may affect business performance. As a countermeasure, the Group regularly gathers information on legal and regulatory changes from local advisory lawyers and accounting firms, and works closely with its Malaysian subsidiaries to respond appropriately.

Large-scale natural disasters (typhoons, earthquakes, etc.) occurring domestically or overseas could cause plant shutdowns or reduced operating rates, potentially having a significant impact on business performance, and the Group recognizes that the possibility of this risk materializing always exists. Indirect effects through fluctuations in shipments of customers' products are also anticipated. As a countermeasure, the Group disperses risk by establishing multiple manufacturing bases domestically and overseas and expanding into diverse product categories and demand sectors, and conducts disaster prevention drills based on its BCP (Business Continuity Plan).

Manufacturing sites are prone to industrial accidents such as being caught in or entangled by machinery, as well as fires and equipment malfunctions. In the event of a serious accident, decreased sales, equipment restoration costs, and compensation costs may affect business performance and financial condition, and the Group recognizes that the possibility of this risk materializing always exists. Based on the actual fire that occurred at the Hachinohe Plant in March 2023, the Group has strengthened measures such as installing sprinklers at all Pulp Mould plants and conducting safety patrols by the Central Health and Safety Committee.

If business activities become constrained due to the tightening of environment-related laws and regulations or increased demands for social responsibility, unplanned capital expenditures and the burden of environmental protection costs may arise, potentially affecting business performance, and the Group recognizes that the possibility of this risk materializing always exists. As a packaging materials manufacturer, the Group positions environmental conservation as an important management issue, and seeks to mitigate this risk through the regular promotion of environmental conservation activities by the Productivity Improvement Committee and equipment maintenance aligned with environmental conservation.

If confidential information or customer information is leaked due to external cyberattacks or other causes, it could adversely affect business performance and financial condition through claims for damages, response costs, and damage to social credibility. As the Group makes extensive use of core systems such as sales management and production management, there is a risk of becoming a target of attacks. As a countermeasure, the Group has formulated and disseminated an information security policy, and implements virus protection on all servers and clients, access restrictions, and email monitoring, among other measures.

If industrial accidents, incidents, fraudulent acts, or legal violations occur at any of the five domestic and overseas group companies, this could adversely affect the performance and financial condition of the Group as a whole, and the Group's ability to demonstrate its combined strength as a group has a significant impact on achieving its management goals. As a countermeasure, the Group regularly conducts management policy briefings including all group companies and strives to raise compliance awareness through regular compliance study sessions.

If the market value of fixed assets declines significantly or the profitability of a business deteriorates, the application of impairment accounting for fixed assets may result in an impairment loss, potentially affecting financial position and business results. As a manufacturer with numerous production facilities and plants, the risk of impairment increases during economic downturns or periods of declining demand.