Nippon Pigment Holdings Company Limited

Approximately 60% of net sales depend on Resin Compound, with OEM production for customer resin manufacturers being the main business model. If customer resin manufacturers experience sales downturns, request price reductions, or change their procurement policies, this could directly and adversely affect the Group's business results and financial position. The concentration risk of the business portfolio is high, and reducing dependence on a single segment is a challenge.

As major users relocate production bases to Southeast Asia, China, and other regions, the domestic market has tended to stagnate, and price competition has intensified. If overseas relocation accelerates further, further contraction of domestic demand and pressure on profitability are expected. As countermeasures, the Group is exploring the development of high-value-added products and new business development, but if concrete results are not obtained, this could lead to a deterioration in business performance.

There is a risk that significant increases in crude oil prices or fluctuations in the rare metal market will lead to increased raw material procurement costs and energy costs. There are also concerns about stagnant demand due to rising prices of plastic products and procurement difficulties for certain colorants. If these cost increases cannot be passed on to selling prices, profitability could decline significantly.

There are multiple financial risks, including increased interest payments on interest-bearing debt due to rising interest rates, valuation losses on held securities due to stock market declines, and the impact of sharp exchange rate fluctuations on the translation of financial statements of overseas consolidated subsidiaries. In addition, there is a risk of uncollectible trade receivables due to the bankruptcy of business partners, and a risk of impairment losses on held assets due to changes in the business environment or land price trends. If the return on pension asset investments falls below the planned rate, this could also adversely affect the financial position.

The final applications of the Group's products are centered on automobiles, home appliances, information equipment, and OA equipment, and disasters, terrorism, political instability, the spread of infectious diseases, and other factors in the countries and regions where these major users conduct business, both in Japan and overseas, could significantly affect economic and business conditions. If the demand trends of major users fluctuate, this could adversely affect the Group's business results and financial position. Because of the high degree of dependence on specific regions and industries, there is vulnerability to changes in the external environment.

In overseas business locations, there are risks of social and economic disruption due to terrorism, war, the spread of infectious diseases, etc., as well as risks from unexpected enactment or amendment of laws and regulations, and taxation risks imposed by tax authorities. The withdrawal or downsizing of business by final users and major business partners, as well as difficulty in securing local personnel, are also cited as potential risks. If these events occur, they could adversely affect the Group's overall business results and financial position through the deterioration of overseas subsidiaries' performance.

Although quality control is implemented in accordance with international quality control standards, if a defect occurs at a business partner user and the cause is attributable to the Group's manufacturing processes, the Group may be subject to compensation claims. Because quality issues with synthetic resin-related products directly affect the production lines of business partners, there is a risk that the amount of compensation could become large. The occurrence of quality issues could adversely affect not only financial results but also relationships with customers and corporate credibility.

Because the Group manufactures flammable products related to synthetic resins, if production bases are damaged by a large-scale natural disaster such as an earthquake, costs for factory repairs and other expenses may arise, adversely affecting business results. In addition, if information systems are shut down for a long period due to disasters, terrorism, cyberattacks, computer viruses, etc., delays in business processing may occur. The Group is actively working to prevent accidents such as fires, but its response to large-scale disasters may be limited.

Against the backdrop of sluggish growth in the domestic market, the development of high-value-added products and new business development have become important management issues. If the Group fails to accurately grasp user needs and develop products in a timely manner, this could lead to a decline in competitiveness and adversely affect its business results and financial position. The creation of new businesses is required in order to move away from dependence on existing businesses centered on color-related businesses such as Resin Compound, Colorants for Resin, and Processed Colors.

Although the recruitment and development of excellent human resources is necessary for sustainable growth, competition for hiring personnel has intensified due to the declining birthrate and population decrease in Japan. Combined with increasing labor mobility due to changes in the social environment, there is a risk that it will become difficult to continuously secure and develop human resources. If securing human resources is delayed, this could hinder business activities, but specific countermeasures are only briefly described in the Annual Securities Report.