Isamu Paint Co., Ltd.

The Group has a high dependency on petroleum-related products, and trends in crude oil, naphtha, and other prices directly affect the prices of paint raw materials. In a price increase phase, business performance may be significantly affected through increased manufacturing costs. Although the Group recognizes the risk of dependence on specific manufacturers as a countermeasure, no specific hedging methods are described in the Annual Securities Report.

Regarding raw materials dependent on specific manufacturers, if the manufacturer concerned suffers a disaster or accident, procurement may become difficult, potentially disrupting production activities. The status of securing alternative procurement sources is not specifically described in the Annual Securities Report, and the vulnerability of the supply chain represents a latent risk.

The paint industry is subject to a wide range of legal regulations, including the Air Pollution Control Act, the Water Pollution Control Act, the Poisonous and Deleterious Substances Control Act, and the PRTR Act. The enforcement of new regulations or the strengthening of existing regulations in the future may restrict sales activities and increase compliance costs, thereby affecting business results. The Group is focusing on addressing this through the formulation of an "Environmental Policy" and the acquisition of ISO14001 certification, among other measures.

The Group continues to develop new products and coating systems to meet diversifying and increasingly sophisticated market needs; however, if product development and sales policy deployment are not carried out at the appropriate time, there is a risk that future growth and profitability may decline. Delays in development or misdirection amid technological competition with competitors may directly affect business performance.

The Group's production is concentrated solely at the Shiga Plant (Kusatsu City, Shiga Prefecture). If this plant were to be damaged by an earthquake or other natural disaster, there would be no alternative production means, potentially causing severe impact on business results. While a system is in place to compensate for part of the financial loss through fire insurance and other coverage, risks of opportunity loss and customer attrition due to production stoppage remain.

If the spread of infectious diseases such as COVID-19 disrupts production sites, logistics systems, or sales activities, business performance may be affected. Combined with dependence on a single production site, the risk to business continuity is high in the event of staff shortages or operational restrictions caused by infectious diseases. Specific details of a business continuity plan (BCP) are not described in the Annual Securities Report.

Although products are manufactured based on strict quality control standards, if unexpected product defects occur on a large scale, this may affect the Group's financial position and business results. While the Group transfers a certain degree of risk by subscribing to product liability insurance, responses to losses not covered by insurance or to reputational damage may be limited.

In operating numerous information systems, the Group is exposed to risks such as data loss, information leakage, line failures, computer malfunctions, and virus damage. Although the Group has established appropriate allocation of authority and responsibility, checking systems, and measures against external intrusion, if these measures prove insufficient amid the increasing sophistication of cyberattacks, business operations and creditworthiness may be significantly affected.