NIPPON SEIRO CO., LTD.

As a result of ceasing operation of the vacuum distillation unit in FY2023 (ended December 2023) and implementing a raw material conversion, the main raw material for wax manufacturing has shifted to slack wax. Although diversification of suppliers is being promoted, if a supply disruption due to equipment trouble or other issues at a major supplier becomes prolonged, it could have a material impact on production activities and business performance. The Company continues to address this by promoting supplier diversification.

The price of raw material oil, which accounts for the majority of product costs, is linked to crude oil prices and petroleum product market conditions, and a significant and rapid change in market conditions would directly affect business performance. Since crude oil market conditions fluctuate due to geopolitical factors and supply-demand balance, cost management is highly challenging. The securities report does not describe specific hedging measures, leaving a structural vulnerability to market fluctuation risk.

Wax products are used in a variety of industrial fields and consumer goods sectors both domestically and internationally, and demand is affected by economic and industry trends in each country. In addition, heavy oil, a byproduct, is undergoing reduced production and sales in line with the raw material conversion, but is affected by weather and electricity supply-demand conditions. The Company aims to minimize these impacts by increasing the value-added of wax products and promoting the reduction of heavy oil.

As the Company holds interest-bearing debt, a rise in interest rates directly leads to an increase in borrowing costs. In addition, the cost of imported raw materials and the sales prices of exported products are affected by exchange rate fluctuations, so business performance may be affected in either a yen depreciation or yen appreciation phase. The securities report does not describe specific hedging measures or the balance of interest-bearing debt, so a quantitative assessment of the risk scale requires separate confirmation of the financial statements.

If a natural disaster such as an earthquake or typhoon, or a human-caused operational accident occurs, emergency measures such as suspension of operations may become necessary, potentially disrupting production and sales activities. Although safety measures such as regular equipment inspections are thoroughly implemented, the high dependence on equipment as a manufacturing business means that a prolonged shutdown would directly affect business performance.

Employee retirement benefit expenses and obligations are calculated based on actuarial assumptions such as the rate of return on pension assets and the discount rate. If a deviation arises between assumptions and actual results due to a deterioration in the pension asset investment environment, future retirement benefit expenses may increase, potentially affecting business performance. Although appropriate treatment is conducted in accordance with accounting standards, a risk dependent on the external market environment remains.

Inventories, fixed assets, and investment securities are exposed to the risk of valuation losses or impairment due to declines in asset value. Changes in the composition of equipment associated with the raw material conversion and market fluctuations could give rise to impairment risk for fixed assets. Although appropriate treatment is conducted in accordance with accounting standards, a further decline in asset value would inevitably affect business performance.

If a failure or cyberattack occurs in the internal information systems, it could disrupt production and sales activities and affect business performance. The Company has implemented BCP measures such as antivirus protection, continuous centralized monitoring of all PCs, restrictions on the use of external storage media, and cloud migration of system infrastructure, but the securities report explicitly states that the possibility of an information system failure occurring cannot be reduced to zero.

The Group conducts business operations in the Kingdom of Thailand in accordance with local laws, administrative procedures, and business customs. However, there is an inherent risk of unexpected drastic changes in the political situation, changes in the legal system, or geopolitical risks, and if these materialize, they could affect business performance. The concentration of overseas business in a single country, Thailand, is a factor concentrating geopolitical risk.