SHIMOJIMA Co.,Ltd.

In the Paper Products, Chemical Products & Packaging Materials, and Store Supplies businesses, numerous competing manufacturers and wholesalers exist, and combined with customer demands for price reductions, the Group is exposed to intense price competition. If a significant decline in selling prices occurs, it may affect business performance and financial condition. As countermeasures, the Group is promoting an omni-channel strategy through the expansion of its mail-order business and advancing the development and sale of high-value-added products, including Environmentally Friendly Products.

Due to laws and regulations such as the mandatory charging for plastic shopping bags, significant fluctuations have occurred in the market environment surrounding the Group's core products, paper bags and plastic shopping bags, and the risk of impact on business performance and financial condition continues. The Group is addressing this through the development and sale of products in new fields, such as plastic-free materials, take-out and food delivery materials, and online retail materials.

Since the procurement prices of poly bags, paper bags, and other products are linked to the market conditions for synthetic resin and base paper, fluctuations in these market conditions may lead to an increase in cost of sales. In addition, since many of the Group's products and merchandise are imported from overseas, procurement instability due to country risks such as political instability, natural disasters, and human rights violations in manufacturing countries can also be a factor in cost increases. The Group seeks to mitigate the risk of dependence on specific market conditions or specific countries by diversifying its procurement sources and the range of products handled.

For the Group, which has a high ratio of imports from overseas, sharp fluctuations in foreign exchange rates may directly affect business performance and financial condition through an increase in cost of sales. The Group seeks to mitigate foreign exchange fluctuation risk by utilizing hedging instruments such as forward exchange contracts and option transactions.

Logistics costs may rise due to increases in handling volume and soaring freight rates, which could affect business performance through an increase in selling, general and administrative expenses. There is also a risk that unexpected bad debt losses or additional provisions for doubtful accounts may arise due to credit concerns across the overall economy. The Group is addressing this through efficiency improvements via enhanced warehouse functions and the introduction of new logistics systems, as well as through strengthened credit investigations and the use of factoring.

The Group holds various fixed assets and applies impairment accounting. If profitability deteriorates at stores or other facilities, or if there is a significant decline in the market price of held assets, impairment losses may be recognized, potentially affecting business performance and financial condition. The Group strives to secure profitability through continuous review of its store sales policies, strengthening of merchandising measures, and appropriate maintenance and management of owned facilities.

Rapid technological innovation and the increasing sophistication of societal needs may lead to a shortage of employee skills, and there is a risk that securing the necessary personnel may become more difficult due to changes in the demographic structure. There are also concerns about declining employee engagement and rising turnover rates due to harassment or inappropriate personnel evaluations. The Group is addressing this through strengthened recruitment activities including mid-career hiring, in-house training and job rotation, improved operational efficiency through the use of new technologies such as AI, and regular implementation of engagement surveys.

There is a risk of misconduct arising from delayed responses to rapid changes in the market environment or deficiencies in internal controls, as well as a risk of compliance deviations due to changes in regulatory trends. In May 2026, the Group formulated its medium-term management plan "Dream Action 2030," and is strengthening governance by transitioning to a company with an audit and supervisory committee, while also strengthening the development and operation of internal controls centered on the Internal Audit Office and the Group Management Office.

If an information leak occurs due to ransomware, virus infection, or similar causes, it may affect business performance and financial condition through damages payable to customers and a decline in credibility and brand image. There is also a risk that the Group's IT technology may become misaligned with customer needs due to rapid innovation in IT technology. The Group is addressing this through the establishment of an Information Security Committee, obtaining ISO27001 certification, and building a company-wide DX promotion structure through the DX Committee.

If major business locations or partner factories are damaged by natural disasters such as earthquakes or floods, delays or suspensions in production, sales, and delivery may occur, and changes in infrastructure conditions such as power shortages could also disrupt business activities. The Group is addressing this through risk reduction by diversifying procurement sources and logistics bases, and through the establishment of risk management regulations and various manuals along with thorough communication to employees.