LONSEAL CORPORATION

There is a risk that unforeseeable social disruptions such as terrorism, war, or infectious disease outbreaks may cause difficulties in procuring raw materials, price surges, and disruptions to production and sales activities. Since the Group conducts business activities both domestically and overseas, it is directly susceptible to geopolitical risks and the effects of infectious disease outbreaks. As countermeasures, the Group implements procurement from multiple suppliers, switching to substitute materials, and diversification of inventory through the use of external warehouses.

There is a risk that natural disasters such as major earthquakes or unforeseen accidents may cause production suspension or restrictions at the Tsuchiura Plant. In addition, if natural disasters coincide with supply chain disruptions, stable supply may be impaired, potentially affecting business performance. As a countermeasure, the Group has established a stable supply system by securing a certain level of inventory at the Tsuchiura Plant and utilizing external warehouses.

There is a risk that serious complaints arising from production troubles, negligence, or nonconformity with contracts could lead to a decline in credibility and deterioration in business performance. As a synthetic resin processing manufacturer, ensuring stable quality is fundamental to business continuity, and quality issues directly affect trading relationships with customers. The Group works on continuous quality maintenance and improvement through the establishment of a quality management system and regular maintenance/renewal of aging equipment.

There is a risk that costs may arise from new capital investments or restrictions on business activities due to stricter legal regulations or demands for social responsibility. Although the Group upholds "manufacturing that is kind to people and the earth" as its corporate philosophy, depending on the direction of environmental regulations, additional cost burdens could pressure business performance. The Group strives to mitigate this risk through the introduction of energy-saving equipment, reduction of industrial waste, and promotion of recycling.

There is a risk that failure to respond to changes in laws, social conditions, and the diversification of values could result in serious compliance violations, significantly affecting business performance and social credibility. As the Group operates domestically and internationally, the scope of applicable laws and regulations is broad, and violation risks are wide-ranging. The Group seeks to mitigate this risk through the establishment of the "Lonseal Group Code of Conduct" and thorough employee education and promotion under its internal control system.

US dollar-denominated receipts from exports of domestically manufactured products constitute the main foreign currency-denominated transactions, and there is a risk that significant fluctuations in exchange rates could increase or decrease the yen-equivalent amount of foreign currency-denominated assets and liabilities, affecting business performance. In a yen appreciation phase, export revenue erosion occurs, directly affecting profitability. The Group has established a system enabling the use of forward exchange contracts and hedges the risk by executing them as necessary.

There is a risk that if it becomes difficult to recruit and develop the excellent and diverse talent required due to the declining birthrate, aging population, and advancing digitalization, organizational capabilities may decline and individual capability development may be hindered, affecting business performance. Securing both the quality and quantity of human resources is fundamental to maintaining competitiveness in domestic and overseas business operations. The Group addresses this through promoting diverse work styles, recruitment with awareness of diversity, and education to enhance individual capabilities.

There is a risk that legal violations, liability for nonconformity with contracts, product liability (PL), internal misconduct, information leaks, and other causes could develop into serious litigation, resulting in damages and impacts on business performance and credibility. Product liability risk is an area requiring particular attention in the manufacture and sale of synthetic resin processed products. The Group seeks to mitigate this risk by consulting with legal counsel and other experts from the initial stage of any issue and taking appropriate action.

There is a risk that if confidential information of business partners or the Group's R&D and production know-how and personal information are leaked externally due to cyberattacks or negligence, this could lead to temporary suspension of business activities and a decline in social credibility, affecting business performance. With the advance of digitalization, the threat of cyberattacks is increasing, and the leakage of technical information could also lead to the loss of competitive advantage. The Group works to raise security awareness through annual information security training and restrictions on system access.

The Group owns many fixed assets such as production equipment as well as land and buildings at its business sites, and there is a risk that impairment losses could occur and affect business performance if the profitability of fixed assets deteriorates significantly. In the Real Estate Leasing Business as well, a decrease in rental income from tenant companies or termination of transactions could lead to a decline in the profitability of owned real estate. The Group applies accounting standards related to impairment of fixed assets and regularly examines indications of impairment, while striving to maintain stable revenue through regular exchange of information with tenant companies and appropriate rent setting.