Nihon Tokushu Toryo Co., Ltd.

The Group conducts joint business operations with numerous partners in the form of technology alliances and joint ventures. If a misalignment of strategy or policy arises among the parties involved in joint activities, this could adversely affect business performance and financial position. Although efforts are made to strengthen information sharing and collaboration among departments and companies, governance risks inherent to joint venture structures remain.

The risk of a major earthquake directly beneath the Tokyo metropolitan area, or a Tokai, Tonankai, or Nankai earthquake, is increasing, and if the Group's facilities were to suffer damage, production and operations could become difficult, adversely affecting business performance. While the COVID-19 pandemic has largely normalized, risks remain from viral mutation or the spread of new severe infectious diseases. Business continuity plans are formulated, regular drills are conducted, and plans are reviewed at the company-wide level, but the possibility of unforeseen events occurring cannot be ruled out.

Climate change resulting from increased greenhouse gas emissions, as well as policies and measures implemented by national governments and regional authorities, may affect market conditions and customer needs, potentially having a significant impact on the Group's business strategy. The Group has set a goal of achieving carbon neutrality by 2050, established a dedicated carbon neutrality project, and developed a management structure through the Board of Directors and the Sustainability Committee. The development and expansion of sales of environmentally friendly products, such as heat-shielding coatings and automotive sound-insulating materials, are positioned as a core strategy in the medium-term management plan.

While strict quality control is implemented under ISO9001 certification, there is no guarantee that defects will be eliminated from all products or that claims will not arise in the future. If losses occur that cannot be sufficiently covered by product liability insurance, this could adversely affect business performance and financial position. Product liability insurance is maintained at a level commensurate with the scale of business operations, but risk remains in the event of a large-scale claim.

As social demands for environmental preservation increase, related laws and regulations are becoming stricter year by year. If regulatory tightening or new regulations are enacted beyond what is anticipated, this could lead to restrictions on business activities and increased compliance costs. The Group conducts risk assessment and evaluation in advance, in addition to responding after the fact, and formulates and implements business strategies and risk countermeasures, but uncertainty regarding regulatory trends remains high.

Amid increasing threats such as cyberattacks, if the Group were to suffer a cyberattack or similar incident of a scale or nature far exceeding expectations, this could adversely affect business performance and financial position through disruption of business activities and a decline in credibility and reputation. The Group has established information security policies and regulations, continuously strengthens its systems and advances security measures (hardware aspects), and conducts regular employee training (software aspects), but risk remains in the face of increasingly sophisticated threats.

Due to the rapid decline in the working population resulting from the falling birthrate and aging population, as well as increasing labor market fluidity, if it becomes difficult to secure human resources suited to the Group's business strategy, this could adversely affect business performance and financial position. The Group is advancing planned recruitment and development of personnel, creating a comfortable working environment, and continuously reviewing its personnel systems, but responding to structural changes in the labor market remains a challenge.

The Group conducts business primarily through joint ventures in North America, China, Thailand, Indonesia, and India. If unforeseen changes in laws, regulations, or economic and trade policies, labor disputes, infrastructure failures, natural disasters, conflicts, terrorism, or political instability occur, this could adversely affect business performance and financial position. Relevant departments strive to obtain information early and consider and implement risk countermeasures, but uncertainty, including geopolitical risk, remains high.

Since capital contributions, dividends, and royalty payments and receipts with joint venture companies, as well as procurement prices of raw materials sourced overseas, are affected by exchange rates, exchange rate fluctuations could impact business performance and financial position. While measures are taken to avoid and mitigate foreign exchange risk, a certain degree of exposure remains due to the business structure centered on local production by joint venture companies.

Capital expenditure and working capital funds are financed primarily through borrowings from financial institutions, with long-term borrowings generally set at fixed interest rates. However, significant interest rate fluctuations could impact business performance and financial position. In addition, price fluctuation risk on held securities and a significant decline in pension assets or substantially unfavorable investment results could also impact financial position. While the Group seeks to reduce risk by diversifying its financial institution relationships, this does not guarantee sufficient future fundraising.