ASAHI PRINTING CO.,LTD.

The Printing & Packaging Materials Business accounts for 89.6% of consolidated total net sales, with the majority consisting of packaging materials for pharmaceuticals and cosmetics. Changes in the market environment for pharmaceutical and cosmetics manufacturers, revisions to the Pharmaceuticals and Medical Devices Act, and changes in customers' management policies could directly impact business performance. Although efforts are being made to diversify the customer base, the structural risk of industry concentration remains.

If labeling errors occur in printing and packaging materials for pharmaceuticals, this could lead to situations affecting human life, and if products in violation of the Pharmaceuticals and Medical Devices Act enter distribution, market recall costs would be incurred. There is also a risk of claims for repair costs incurred by customers due to product defects. A quality control system based on ISO9001 has been established to address this, but complete elimination of the risk is difficult.

Major raw materials such as paper and ink are affected by fluctuations in crude oil prices and foreign exchange rates, compounded by fluctuations in imported wood chip and waste paper prices. Surges in energy and resource prices stemming from geopolitical risks have actually occurred, and if these cost increases cannot be passed on to selling prices, profitability declines. Price pass-through negotiations are being pursued as a countermeasure to rising costs, but the impact on business performance is significant if such pass-through cannot be achieved.

Suppliers of paperboard, the main raw material, are concentrated in the Tokai region (Fuji area), and since many products specify particular paper brands in specification sheets agreed with customers, alternative procurement is difficult. If a natural disaster, accident, or change in business relationships occurs in the supplier region, this could cause significant disruption to production and sales plans due to raw material shortages. Stable procurement is being pursued through basic transaction agreements with suppliers, but the risk of regional concentration remains.

The Printing & Packaging Materials Business is capital-intensive, and if order forecasts and capital investment plans do not proceed as planned, this results in a prolonged investment recovery period and declining profitability due to increased depreciation expenses. Production and capital investment plans are formulated based on order forecasts from the sales department, but there is a risk that plans may not be achieved due to sudden changes in the market environment. The impact on business performance is particularly significant if a shortfall in sales plans and an increase in fixed costs occur simultaneously.

Given the nature of the business, which involves handling confidential information related to customers' new product launches, an information leak would result in a loss of order opportunities due to a breakdown in trust with customers. Efforts are being made to strengthen countermeasures against computer viruses and cyberattacks, but complete defense is difficult given the increasing sophistication of threats. Although leak prevention is thoroughly enforced through the conclusion of confidentiality agreements and memoranda, risks exist from both internal and external sources.

If an earthquake, flood, fire, or other disaster occurs at a production site, it will directly or indirectly affect operations. In light of the risk of factory concentration in the Toyama area, production sites were established in Kizugawa City, Kyoto Prefecture in 2015 and 2020, building a dual production system; however, the possibility that multiple sites could be simultaneously affected in the event of a large-scale disaster in the same region cannot be denied. Strengthening cooperation, including with group companies, and enhancing BCP measures are being continuously promoted.

The company has three subsidiaries in Malaysia (Harleigh, Shin-Nippon Industries, and Kinta Press & Packaging) conducting business directed at ASEAN, but inherent risks include changes in local laws and regulations, labor disputes, difficulty securing personnel, and social disruption risks from terrorism and infectious diseases. The materialization of these risks could affect the group's overall business performance through a decline in the profitability of overseas operations.

Goodwill has been recorded on the consolidated balance sheet in connection with the acquisition of shares in the three Malaysian companies, and an impairment loss will occur if these subsidiaries fail to generate the expected cash flows. If the overseas business environment deteriorates or poor performance continues, there is a risk that financial condition will worsen due to the recognition of a one-time loss.

In addition to the risk that securing necessary personnel will become difficult due to the decline in the working population, there is a risk of personnel turnover due to management failures. Securing skilled personnel is particularly important in manufacturing, and personnel shortages could affect production capacity and the quality control system. Continuous efforts are being made to secure and develop personnel, but responding to structural changes in the labor market remains a challenge.