JAPAN INSULATION CO., LTD.

The company's mainstay product, calcium silicate insulation material, depends on capital investment trends in the petroleum, petrochemical, electric power, gas, and steel industries, while fireproof covering materials depend on construction demand for office buildings and logistics facilities, meaning the business is directly affected by domestic and overseas economic trends and conditions. In phases of soaring construction costs, price competition with alternative materials intensifies, potentially creating downward pressure on both order volumes and selling prices. Because performance is influenced by the capital investment cycles of demand-side industries, there is a risk that sales and profits could decline substantially during economic downturns.

Rising prices of principal raw materials such as limestone and silica sand, and manufacturing heat sources such as natural gas, together with supply-demand tightness caused by geopolitical risk, may make stable procurement difficult. Because the company requires high-purity raw materials, its suppliers are limited, creating a structural vulnerability in securing alternative sources. Rising freight rates due to stricter working-hour management in the logistics industry may also push up manufacturing costs and adversely affect business results.

Class action lawsuits naming the national government and numerous building materials manufacturers as defendants over lung cancer and other illnesses caused by past asbestos exposure at construction sites are ongoing, and the company is a party to such litigation as one of the defendant companies. If a clear causal relationship is found between the company's products and the plaintiffs' onset of disease, the company may lose the case, and it plans to consider recording a provision for litigation losses as necessary. The company also continues to pay compensation to employees and former employees for asbestos-related illnesses caused by the company, and has recorded a provision for health damage compensation; however, future increases in compensation costs could affect its financial position.

In the construction business, the assignment of qualified personnel such as chief engineers is legally required, and securing and developing specialized personnel has become an important management issue as business scale expands. If the company is unable to secure the necessary personnel in time during rapid business expansion, or if recruitment costs rise, this could lead to lost order opportunities or a decline in construction quality. While the company focuses on promoting the hiring of qualified personnel and supporting employees in obtaining qualifications, the labor shortage across the construction industry as a whole continues as a structural risk.

In business operations in Southeast Asia, centered on Vietnam, country risks exist, including social disruption from terrorism, war, and epidemics, power outages and logistics disruptions due to inadequate infrastructure, and troubles arising from differences in business customs. Changes in Vietnamese tax law, trade barriers, anti-Japanese sentiment, and taxation under transfer pricing rules could also adversely affect business activities. These risks could also indirectly affect performance if they occur at business partners of the group.

Construction revenue is recognized based on progress measured using the input method, and if estimates of total construction costs diverge from actual results due to changes in uncertain future economic conditions, the amounts of revenue and expenses recognized may fluctuate. If unprofitable construction projects arise due to unexpected additional costs, this directly affects the financial position and business results through the recording of provisions for construction losses. Although the company has established an appropriate cost estimation system, there is a risk that the impact per project will increase as construction projects grow larger in scale.

Through its business activities, the company holds personal information and confidential information of business partners, as well as confidential business and technical information, creating risks of information leakage, data destruction, or system outages due to cyberattacks or unauthorized access. Although the company has taken measures such as establishing information management regulations, thoroughly communicating them to employees, and taking out cyber insurance, complete defense is difficult given the increasing sophistication and diversification of cyberattacks. If an information leak occurs, it could damage social trust and give rise to liability for damages, potentially affecting business results.

The company is subject to a wide range of laws and regulations, including the Construction Business Act, the Building Standards Act, the Fire Service Act, the Industrial Safety and Health Act, and the Basic Environment Act, and maintaining its specific construction business and general construction business licenses (valid until July 2030) is a precondition for continuing operations. If a violation of laws or regulations occurs, this could lead to administrative dispositions such as license revocation or business suspension, liability for damages, and damage to social trust. Increased costs of responding to future legal and regulatory amendments could also affect business continuity, requiring the maintenance and strengthening of the compliance framework through training for officers and employees.

The company holds fixed assets such as multiple production sites in Japan and overseas, and if profitability declines due to a significant deterioration in the business environment, it may become necessary to record an impairment loss. The occurrence of an impairment loss would temporarily and substantially reduce net assets and net income for the period, having a significant impact on the financial position. In particular, at overseas sites, impairment risk may increase due to the combined effects of country risk.

If a large-scale earthquake, wind or flood damage, epidemic, or similar event occurs at one of the multiple production sites in Japan or overseas, substantial costs may arise from facility restoration expenses, production stoppages, and shipment delays, potentially affecting business results. If a serious industrial accident occurs at a construction site, this could damage social trust and adversely affect order-taking activities. Although preventive measures such as establishing health and safety committees and conducting safety patrols have been implemented, it is difficult to completely eliminate these risks.