CHUGOKU MARINE PAINTS,LTD.

Marine Paints and Container Paints, which account for over 80% of net sales, are highly susceptible to market conditions. A decline in newbuilding vessel construction volume and container production volume due to a slowdown in the global economy would directly lead to a decrease in sales volume. The Company seeks to mitigate this impact through a profitability-focused policy and expanded sales of Industrial Paints, but high dependence on specific fields could have a material impact on its financial position and business results.

The purchase prices of resins and solvents, the Company's main raw materials, are heavily influenced by naphtha prices, and prices of non-ferrous metals such as copper and zinc also fluctuate significantly in line with international market conditions. The Company responds through cost reduction and passing costs on to selling prices, but a greater-than-expected surge in raw material prices could lead to higher procurement costs and lower profit margins, potentially affecting its financial position and business results.

With the overseas sales ratio already exceeding the domestic ratio and expected to continue expanding, there is a risk that deterioration in local economic and market conditions, terrorism or conflict, and unexpected changes in political systems, legal environments, or tax systems could disrupt business operations. The Company identifies risks and formulates countermeasures across sales, technology, production, and administrative functions, but it is difficult to fully foresee risks unique to overseas operations, raising concerns about potential impacts on its financial position and business results.

The Company is exposed to competition on price and performance in both domestic and overseas paint markets, and intensifying price competition leading to a significant decline in selling prices could worsen profitability. The Company strives for product differentiation through cost reduction and improved technological capabilities, but if a competitor introduces a groundbreaking new product that reduces the Company's competitiveness, this could lead to a decline in net sales and profit.

Since most overseas sales involve local production and local sales, the impact of foreign exchange gains and losses on a group company basis is considered limited. However, because the financial statements of overseas group companies are translated from local currencies into yen when preparing consolidated financial statements, fluctuations in exchange rates could affect the yen-translated consolidated financial statements. The scale of this translation risk is expected to grow as the overseas sales ratio increases.

A rapid strengthening of various regulations aimed at the transition to a decarbonized society could result in substantial cost increases, and more frequent occurrences of extreme weather could lower operating rates, potentially affecting the Company's financial position and business results. The Company endorses the TCFD recommendations and conducts scenario analysis to examine countermeasures, but there is a risk that its response may not keep pace depending on the speed of regulatory tightening or the scale of extreme weather events.

Safety and environmental regulations governing the manufacturing, transport, and use of products are being progressively strengthened both in Japan and overseas. Regulatory tightening in countries where the Company operates could lead to restrictions or suspension of plant operations, substantial increases in environmental investment, and greater tax and levy burdens, potentially affecting its financial position and business results. The Company works to improve product safety and reduce environmental impact, but depending on the scope and speed of regulatory tightening, compliance costs could exceed expectations.

As the Company holds confidential information such as customer and technical data, there is a risk that information could be leaked, lost, or falsified due to intentional or negligent acts by employees or unauthorized access or computer virus infection by third parties. The Company has established an Information Security Subcommittee under the Sustainability Committee and implements measures such as employee training, but should such an event occur, disruption to business activities or reputational damage could affect its financial position and business results.

While the Company's major domestic and overseas plants have obtained ISO9001 certification and strive for continuous improvement of their quality management systems, if products fail to deliver their intended performance due to product defects or external factors such as coating methods or coating environments, this could lead to substantial compensation burdens and reputational decline. This is particularly significant for marine vessel and container applications, where quality defects could have a major impact, raising concerns about deteriorating earnings and effects on the Company's financial position.

In business acquisitions, business alliances, and joint ventures aimed at expanding business and improving profitability, the Company conducts thorough due diligence in advance. However, if changes in the business environment prevent the initially expected synergies or cash flows from being realized, this could result in impairment of fixed assets or goodwill, potentially affecting the Company's financial position and business results. As such investment decisions inherently involve uncertainty, the effectiveness of the post-investment monitoring system is important.