POLA ORBIS HOLDINGS INC.

In our group, which operates a multi-brand strategy including "POLA" and "ORBIS," the spread of negative reputation or evaluations regarding business activities could damage brand image and adversely affect operating results and financial condition. The Board of Directors works to reduce this risk by setting multiple key indicators by brand and by business, and monitoring the maintenance and management status of each brand's uniqueness.

The domestic cosmetics market has entered a mature phase, and the competitive environment is becoming increasingly severe due to corporate group restructuring through M&A, new entrants from different industries, and increased influence from alliances and integration among distribution and retail businesses. If we fail to appropriately address unexpected changes in the competitive environment, it could adversely affect operating results and financial condition. We are responding by actively developing overseas markets and focusing on new business areas.

In strategic investments in overseas expansion, M&A, and new businesses centered on the Asia-Pacific region, if the originally intended results are not achieved due to unforeseen changes in the environment, it could adversely affect operating results and financial condition. In addition, if business assets or goodwill and other assets arising from M&A fail to generate the expected cash flows, an impairment loss may be recorded. We strive to ensure an appropriate acquisition process by improving the accuracy of due diligence and corporate valuation using external experts.

If unforeseen circumstances arise due to fluctuations in the prices of raw materials such as crude oil or other external factors, it could disrupt raw material procurement or increase manufacturing costs. Cosmetics manufacturing is concentrated at three sites: the POLA Kasei Kogyo Fukuroi Plant, TDC (Yokohama City), and Jurlique's Mount Barker plant, so if a quality issue occurs, it could also adversely affect operating results and financial condition. We are strengthening the group's quality assurance system by organizing the Group QCD Committee.

If information leakage or system outages occur due to cyberattacks or other causes, it could result in business disruption, damage claims, loss of trust, and other adverse effects on the business. Centered on the Information Security Committee, we are implementing measures such as system improvements, establishment of internal regulations, and regular training, and we maintain up-to-date defense measures based on the U.S. NIST Cybersecurity Framework.

Insufficient compliance with various laws and regulations related to cosmetics manufacturing and sales, consignment sales, mail-order sales, etc. could result in administrative guidance, surcharges, fines, restrictions on business activities, and reputational damage. In addition, overseas business could be affected by changes in import regulations in overseas markets or other regulatory trends. We respond through regular monitoring of legal amendment trends, internal training, system development, and information gathering.

If the POLA Kasei Kogyo Fukuroi Plant (Fukuroi City, Shizuoka Prefecture), our main production site, is damaged by a large-scale earthquake, flood, or other disaster in the Tokai region, it could result in a long-term inability to supply products. We are working to avoid and diversify this risk by securing BCP inventory, switching production to external manufacturing contractors, and giving TDC the function of producing priority group items.

The worsening of climate change could give rise to risks such as changes in product selection due to more frequent natural disasters and ecosystem changes, suspension of operations at business sites and plants due to floods or wildfires, and changes to product formulations due to increased difficulty in procuring raw materials. In addition, we recognize human rights issues such as forced labor and child labor in the palm oil supply chain as a significant risk, and we respond by procuring RSPO-certified products and conducting annual human rights due diligence. Our CO2 emission reduction targets are linked to executive stock compensation (LTI) to enhance effectiveness.

Due to the declining domestic population, significant expansion of domestic demand excluding inbound demand and other factors is difficult to foresee, which could adversely affect business, such as business stagnation. In addition to the impact on business performance, this could also adversely affect the acquisition of personnel involved in business operations. We are focusing on securing labor by promoting overseas business expansion as a key theme and strengthening global operations, as well as through work-style reforms such as remote work, side-job programs, and the partial removal of limits on employment extension.

We are a holding company, and most of our income depends on management fees, outsourcing fees, and dividends received from subsidiaries. If regulations under the Companies Act or other laws limit the amount subsidiaries can pay to us, or if subsidiaries fail to record sufficient profits, it could become difficult for us to pay dividends to shareholders.