PILOT CORPORATION

In the stationery products business, there is a risk that market share may decline due to intensifying competition with competitors and oligopolization of distribution channels. In addition, if innovative products or services emerge that render the Company's product lineup obsolete, this could lead to decreased sales and potential recognition of inventory valuation losses. As countermeasures, the Company is promoting the development of value-added products, continued R&D investment, and strengthening of marketing functions; however, insufficient understanding of market trends or delayed responses to changes in the competitive environment may impact business performance.

Overseas segments account for a very high proportion, approximately three-quarters, of consolidated net sales, and fluctuations in exchange rates when translating foreign-currency-denominated financial statements of overseas consolidated subsidiaries into yen directly affect business performance and financial position. Foreign exchange rate fluctuation risk also exists in foreign-currency-denominated settlements within and outside the Group, and although hedging measures are implemented, the impact on business performance cannot be avoided if exchange rate fluctuations exceed the assumed range. Given the high dependence on overseas business, this risk represents a structural and ongoing challenge.

In corporate acquisitions, joint venture establishments, and capital expenditures aimed at acquiring technology, developing new businesses, and strengthening competitiveness, business performance may be affected by integration costs, failure to realize synergies, loss of key personnel, assumption of liabilities, and other factors. When establishing joint ventures, additional risks accompany such as differences in strategy and culture with partners, obligations to purchase equity interests, leakage of patented technology and know-how, impairment losses, and reputational damage. Although a decision-making framework incorporating diverse perspectives has been established at the Board of Directors and Executive Management Committee, it may not be possible to fully respond to rapid changes in the business environment.

As the Company conducts global business operations in more than 190 countries and regions and also engages in intra-group transactions, it is subject to international tax risks such as those related to transfer pricing taxation systems. Unexpected tax burdens may arise due to differences in views with tax authorities in various countries, potentially affecting business performance and financial position. While the Company works to share information and reduce risk in cooperation with local overseas staff and international tax specialists, there are limits to its ability to respond to changes in tax systems across various countries.

Purchase prices of key raw materials such as metals and resins are affected by resource market conditions and exchange rate fluctuations, and if abnormal fluctuations persist over the long term, this could impact business performance and financial position. Some manufacturing machinery and raw materials are dependent on specific suppliers, and if the supply chain is disrupted due to worsening international conditions, natural disasters, accidents, or other events, production activities could be significantly hindered. While the Company is working to establish multiple supply sources and exchange information with suppliers to confirm legal compliance, it may not be able to fully respond to severe damage occurring near the source of supply.

The Company conducts business in more than 190 countries and regions including Japan, Americas, Europe, and Asia, and if fluctuations occur in the political and economic environment of major sales countries, tightening of legal regulations including tariffs and environmental regulations, or unpredictable events such as war, riots, terrorism, or infectious disease outbreaks, business activities may be constrained. While the Company diversifies sales channels to spread risk and conducts risk forecasting through cooperation with local staff, if unexpected events beyond assumptions occur, business activities in the relevant area may be disrupted. In particular, political and economic risks in major markets such as China, the United States, and major European countries could have a significant impact on business performance.

Due to high dependence on communication networks between locations, if a cyberattack results in system intrusion, theft or destruction of important data such as personal information, or a large-scale system failure such as ransomware infection occurs, this could have a significant impact on production and sales activities in addition to potentially delaying financial disclosure. While the Company implements measures such as remote data backup, redundancy, deployment of attack monitoring tools, and regular internal training, it is difficult to completely prevent unauthorized access from malicious external parties.

Against the backdrop of chronic labor shortages and advancing labor mobility in the domestic labor market, the Company implements a recruitment strategy premised on continued hiring difficulties and increasing numbers of retirees. If the Company is unable to secure and develop talent as planned, this could hinder the achievement of business strategies and affect business performance and financial position. While the Company responds by providing opportunities for autonomous growth, developing a comfortable working environment, and continuing to hire new graduates and mid-career professionals, the aging of employees is also progressing, making changes in the medium- to long-term talent composition a challenge.

If the Company fails to respond adequately to rapid changes in the business environment or the enactment of legal regulations, product liability risk may increase, potentially resulting in substantial costs for product recalls and after-sales service. If customer satisfaction cannot be maintained, this could lead to decreased demand, reduced competitiveness, and reputational damage, affecting business performance and financial position. While the Company implements its own quality control standards and manufactures and sells products in accordance with the laws of each country, the diversification and increasing complexity of regulations accompanying global expansion is a factor that heightens this risk.

The Company is subject to various environmental laws and regulations in Japan and overseas concerning energy, greenhouse gases, hazardous chemical substances, waste, and other matters, and tightening of regulations driven by climate change countermeasures may increase costs for responding to new tax burdens, equipment changes, and material changes. In addition, if the Company's products no longer align with consumer purchasing preferences due to rising environmental awareness, this could cause deviations in sales plans and affect sales and profit plans. While the Company is proceeding with responses based on the "Pilot Group Environmental Policy," if costs for responding to tightened regulations become enormous, an impact on business performance and financial position would be unavoidable.