Dai Nippon Toryo Company,Limited

In each business including the Domestic Paints Business, Overseas Paints Business, Lighting Equipment Business, and Fluorescent Colorants Business, there is a possibility that sales volume declines and price decreases may occur due to reduced demand in related industries, economic downturns, geopolitical issues (wars, terrorism, etc.), and natural disasters. In particular, anti-corrosion paints are heavily influenced by trends in public investment, while exterior building materials paints are significantly affected by trends in private housing investment and legal regulations. The Company is addressing these issues by developing new customers and enhancing added value, but intensifying competition and other factors may affect business performance and financial condition.

The main raw materials for the paints business are petrochemical products such as naphtha, and there is a risk that raw material prices may rise significantly due to changes in the global supply-demand structure, exchange rate fluctuations, and geopolitical issues. Procurement difficulties may also arise due to tight supply-demand balance or delays. Although stable procurement is being pursued through measures such as multiple sourcing and research into alternative materials, cost increases may affect business performance and financial condition.

Although the Company is working to pass on rising raw material prices to sales prices, if intensifying sales competition and other factors prevent sufficient price pass-through, profitability may deteriorate. A narrowing spread between raw material costs and sales prices directly affects business performance and financial condition.

The financial statement items of consolidated companies with overseas operations in Southeast Asia, China, Mexico, and elsewhere are affected by exchange rate fluctuations when converted into yen. Significant fluctuations in exchange rates may affect the business performance and financial condition of overseas operations.

In October 2023, improper conduct (falsification) was discovered at the consolidated subsidiary Okayama Kako Co., Ltd., and in November 2024, a temporary suspension of the JIS mark labeling was announced (due to out-of-specification shipments and inadequate outsourcing management). In May 2025, the report of the Special Investigation Committee was published, and in November of the same year, notice of the lifting of the temporary suspension of JIS mark labeling was received. However, there remains a possibility that compensation costs to customers and a decline in sales volume, among other factors, may affect business performance and financial condition. The Company is working to promote recurrence prevention measures and thoroughly ensure compliance.

If a large-scale claim or product liability issue arises, compensation and countermeasure costs may be incurred, potentially affecting business performance and financial condition. In particular, for exterior building materials paints, since the enforcement of the "Act on Promotion of Housing Quality Assurance," housing material manufacturers have been requesting long-term coating film warranties of 10 years or more, which carries the risk of increased claims and compensation burdens associated with extended warranty periods and the launch of new products. Although countermeasures such as liability insurance have been implemented, the risk cannot be completely eliminated.

The Company is subject to various laws and regulations concerning commercial transactions, the environment, safety, chemical substance management, patents, accounting standards, taxation, and other areas. Future legal amendments or regulatory tightening may require significant investment in improving production and research facilities or in product design and development. Delays in new product development leading to lost business opportunities may affect business performance and financial condition. The Company is addressing this through ISO14001 certification, Responsible Care activities, and the development of environmentally friendly paints, among other measures.

If information systems are tampered with or disrupted due to disasters, cyberattacks, unauthorized access, or other causes, or if corporate or personal information is leaked outside the Company, business activities may stagnate and social reputation and credibility may decline. Although various security measures have been implemented, complete protection is difficult due to the increasing sophistication of threats, and this may affect business performance and financial condition.

The production sites for the Lighting Equipment Business (Hadano City, Kanagawa Prefecture, and Katagami City, Akita Prefecture) and the Fluorescent Colorants Business (Kamakura City, Kanagawa Prefecture) do not have alternative production sites, and if production activities are suspended due to natural disasters, fires, or other accidents, it may cause significant disruption to business continuity. The production sites for the paints business are being diversified, but serious failures in core systems or power demand adjustments may also affect business performance and financial condition.

Increased costs from introducing clean energy and CO2 emission reduction equipment toward decarbonization, increased costs from purchasing raw materials with lower environmental impact, and new tax burdens related to greenhouse gas emissions may affect business performance. In addition, a risk has been identified whereby a shift in demand toward environmentally friendly products could render existing products obsolete. The Company is addressing this by focusing on the development of environmentally friendly paints, but delays in responding to changes in market needs could lead to a deterioration in business.