NIPPON PAINT HOLDINGS CO., LTD.

The Group's overseas revenue ratio has reached approximately 90%, with Asia, including China, being a particularly important business region. Deterioration in China's real estate market, tightening regulations, geopolitical risks, and economic slowdown due to global inflation and monetary tightening may affect coatings demand and supply chains. As countermeasures, the Group is promoting geographic diversification through M&A, cultivation of new demand, and supplier monitoring; however, if the deterioration exceeds forecasts, it could have a material adverse effect on financial position and operating results.

As of the end of fiscal year 2025, goodwill amounted to ¥1,468,989 million and other intangible assets amounted to ¥614,148 million, both substantial amounts recorded on the consolidated statement of financial position as a result of aggressive M&A activity. If assumptions used in the impairment tests conducted each period, such as future cash flow projections and discount rates, change due to shifts in economic conditions, there is a risk that a material impairment loss could occur. Recognition of an impairment loss could have a direct and material adverse effect on financial position and operating results.

As of the end of fiscal year 2025, total borrowings (excluding the portion due within one year) reached ¥1,297,704 million, comprising a mix of fixed- and variable-rate borrowings. In a future rising interest rate environment, additional interest burden may arise, and there is a risk that financing conditions could deteriorate or become restricted due to a decline in creditworthiness or deterioration of financial markets. Adverse effects on cash flow could make it difficult to maintain financial discipline and could impede business continuity.

The Group has continuously carried out large-scale M&A transactions such as DuluxGroup, Cromology, and AOC, and there is a risk that expected synergies and scale benefits may not be realized due to significant changes in the market and competitive environment after acquisition or delays in integration. If impairment of goodwill, incurrence of additional costs, and failure to maintain relationships with key executives, customers, and suppliers occur simultaneously, this could result in deteriorating profitability and adverse effects on financial position. While M&A candidates are selected based on criteria of returns exceeding the cost of capital and EPS accretion, limitations in due diligence make it difficult to completely eliminate risk.

The Group's reliance on petrochemical raw materials is high, at approximately 50%, and crude oil and naphtha prices fluctuate due to a combination of factors including OPEC actions, geopolitical conflicts, and monetary policies of various countries. If price pass-through to products is delayed or becomes impossible during a sharp rise in raw material prices, profitability could be significantly impaired. There is also a risk that resource hoarding for economic security reasons or disruptions in maritime transport could create procurement difficulties, making it impossible to fulfill supply obligations to customers. While the Group addresses this through diversification of suppliers and multi-vendor procurement, complete elimination of the risk is difficult.

The Wuthelam group is the parent company holding 58.7% of the Company's common stock and has significant influence over special and ordinary resolutions at shareholders' meetings. The interests of the Company and the Wuthelam group may differ from those of minority shareholders, and future conflicts of interest cannot be completely eliminated in the ongoing commercial relationship through the management service agreement and buy-back option associated with the transfer of the European automotive coatings business. In addition, if the Wuthelam group increases or decreases its shareholding, this may affect the market price of the Company's shares.

Automobile manufacturers and materials engineering companies are developing alternative technologies to coatings, such as decorative films, and if these alternatives become mainstream in combination with carbon neutrality promotion policies, there is a risk of a structural decline in coatings demand and the need for substantial investment to respond to such alternatives. In addition, if competitors develop groundbreaking products that surpass the Group's existing technology ahead of the Group, this could result in a decline in market share. The Group is focusing on strengthening collaboration with external networks and developing new products, but if the pace of technological innovation exceeds expectations, an adequate response may be difficult.

The Group's business operations and financial reporting are highly dependent on information and IT systems, and there is a risk that internal systems could be compromised by cyberattacks such as unauthorized access, ransomware, and phishing. If confidential information is leaked or erased or business is disrupted, this could lead to increased response costs, legal violations, and damage to social credibility. While the Group has established backup procedures, disaster recovery measures, and information system security guidelines, these measures may not be able to completely prevent such incidents.

Revisions and tightening of environmental regulations, chemical substance regulations, and health and safety regulations related to the coatings industry are progressing, particularly in China and Europe. If regulatory tightening exceeds forecasts or responses to legal amendments are delayed, this could result in increased response costs, restrictions on manufacturing, sales, and procurement activities, and the risk of administrative sanctions. New tax burdens related to greenhouse gas emissions and rising costs of procuring renewable energy as part of climate change response could also adversely affect financial position and operating results. The Group is responding through the development and introduction of low-VOC and environmentally friendly products and by setting emission reduction targets, but regulatory uncertainty remains high.

In executing the growth strategy under the "Asset Assembler" model, securing, developing, and retaining management personnel and specialized talent in each region is essential; however, increased labor market fluidity has made the risk of turnover among capable employees and insufficient succession planning a challenge. Unexpected turnover or delays in securing management successors could lead to the loss of know-how and technical capabilities, decreased efficiency and productivity, and impairment of competitiveness. The Group is promoting borderless utilization of talent through its global network and initiatives to improve engagement, but if the expected effects are not achieved, this could adversely affect business and financial position.