Nihon Parkerizing Co., Ltd.

The Group provides surface treatment products and services to a wide range of industries including automotive, steel, metals, construction, and electronic components, but economic slowdown or demand contraction in Japan, Asia, Europe, and the Americas could adversely affect business performance. In particular, the Equipment Business is subject to significant year-to-year performance fluctuations because it depends on customers' capital investment demand. The Group is working to establish a flexible production system to respond to sudden demand fluctuations, but the risk of changes in economic conditions cannot be completely eliminated.

In the surface treatment field, differentiation from competitors is a key factor in maintaining profitability, and the Group is promoting the development of environmentally friendly chemicals such as chrome-free chemicals and joint research with customers. However, if the Group misjudges or fails to respond to new technology trends and customer needs, and competitors achieve higher-quality, lower-priced products and services, there is a risk that profitability and market share could decline. Continuous investment in research and development is essential in a market environment where the pace of technological innovation is rapid.

The Group procures many raw materials, including phosphoric acid, from both domestic and overseas sources, but there are raw materials dependent on imports from specific regions and highly synthesized compounds with limited suppliers. If unforeseen events occur, such as destabilization of international conditions, disruption of supply-demand balance, or supplier disasters or bankruptcies, this could disrupt the stable manufacturing and sales system for products. The Group is promoting procurement from multiple suppliers and BCP measures, but the risk cannot be completely avoided.

The purchase prices of phosphoric acid and other metal salts, inorganic and organic substances fluctuate due to the influence of supply-demand balance driven by international conditions, exchange rates, and LME prices. Because the types of raw materials are extremely numerous and many are imported through trading companies, it is difficult to uniformly predict the impact of price fluctuations on business performance, and a sharp rise in prices could adversely affect the financial position and operating results. The Group strives to secure appropriate profits through cost reduction measures and pass-through of prices to products, but if the pass-through is delayed, profitability will be squeezed.

Numerous overseas subsidiaries in Japan, Asia, Europe, and the Americas conduct business activities not only in the US dollar zone but also in various currency zones such as Asian countries, and are affected by foreign exchange translation when preparing consolidated financial statements. Generally, yen appreciation has an adverse effect on performance while yen depreciation has a favorable effect, but because multiple currencies are involved, the impact cannot be uniformly predicted. There is no explicit description in the securities report of specific measures such as foreign exchange hedging, and continuous monitoring of foreign exchange fluctuation risk is necessary.

Business expansion in overseas markets is a pillar of the growth strategy, but various political, economic, and legal constraints may arise, including political instability, trade and foreign currency regulations, changes in laws and tax systems, deterioration of public security, conflicts, terrorism, war, and differences in religion and culture. There is a risk that business activities could be restricted or legal compliance costs could increase due to unforeseen events. The Group is working to strengthen risk management and gather country risk information, but complete avoidance is difficult.

In addition to domestic laws and regulations concerning the handling of chemical substances, the Group must comply with overseas chemical substance regulations such as REACH, TSCA, and RoHS, as well as domestic and foreign laws and regulations related to the import and export of products and raw materials. If these laws are amended or regulations are strengthened, business activities may be restricted or business opportunities may be lost. The Group is actively pursuing information gathering and countermeasures, but there is a risk that costs to respond to changes in the regulatory environment will increase.

The Group is actively promoting global capital investment and M&A, but if profit plans are significantly missed due to unexpected deterioration in market conditions or other factors, impairment of tangible fixed assets, goodwill, and other assets may occur, adversely affecting the financial position and operating results. Important investment projects are decided after the Board of Directors evaluates their business viability, and a system is in place to regularly check progress, but the risk of sudden changes in market conditions cannot be completely eliminated.

The Group is pursuing certifications such as ISO9001 and IATF16949, and implementing preventive activities such as strengthening process control, audits, and training, but defects or malfunctions may occur due to unforeseen troubles in the processes of manufacturing, transportation, and storage. When defects occur, there is a risk that compensation to customer companies and countermeasure costs will be incurred, and business performance may be adversely affected due to a decline in market trust. There is no guarantee that defects will not occur in any products, and continuous strengthening of the quality control system is required.

Securing personnel involved in the transmission of research, technology, and know-how, as well as global business expansion, is an important management issue, and the Group is working on hiring personnel of diverse nationalities, year-round hiring of experienced personnel, and developing future management executives. However, if personnel acquisition and development do not proceed as planned, this could lead to a decline in new product development capability and delays in global expansion, potentially adversely affecting future growth. "Respecting diverse values,

The Group has established regular disaster prevention inspections, disaster drills, and BCPs in preparation for large-scale natural disasters such as earthquakes and typhoons, accidents such as fires, and infectious disease pandemics, but if an unexpected large-scale disaster occurs, business activities may be suspended due to human and material damage, adversely affecting the financial position and operating results. Since manufacturing sites are distributed across Japan, Asia, and North America, the degree of impact that a disaster in a specific region would have on overall performance varies depending on the event.