HIRAGA CO., LTD.

The Company's core business is the manufacturing and sale of inserted advertisements (flyers), with sales primarily to the retail industry, including large-scale retailers, supermarkets, and specialty retail stores. If advertising expenditure in this industry is reduced, it would lead to a decline in net sales. The Company faces a structural concentration risk whereby its business performance is significantly affected by advertising trends in the retail industry.

As certain sales partners grow, their share of the Company's net sales has been increasing. If these sales partners change their transaction policies, net sales could decline significantly. The Company's business performance is structurally linked to the management decisions of its business partners, and diversifying its client base remains a challenge.

The inserted advertisement market has low barriers to entry, and price stagnation due to competition among companies continues. While the Company claims an advantage over competitors with existing customers through accumulated product data and shortened delivery times, if competition intensifies further, it may be forced to lower order prices. Deepening price competition poses a risk of directly and adversely affecting profitability.

Paper is the Company's primary raw material, procured from domestic and overseas paper manufacturers through multiple paper distributors. If paper prices surge due to rising crude oil prices or a global imbalance in supply and demand, the resulting increase in costs would adversely affect business results. In a scenario where procurement becomes extremely difficult, production activities themselves could be constrained.

The Company delivers products to distribution centers and stores based on client needs, but recent conditions among logistics companies may cause freight charges to rise, leading to increased costs. In addition, if delivery lead times are extended, there is a risk of decreased order intake. Deterioration in the logistics environment could affect both profitability and competitiveness.

With the advancement of digitalization, the Company produces, stores, maintains, and manages digital data at the request of its clients. Despite efforts to develop an information security management system, in the event of a data leak or misuse, this could lead to a loss of client trust and damage to the Company's social credibility. This entails not only an adverse impact on business results and financial position but also a risk of damaging business relationships.

While the Company strives for thorough credit management, the creditworthiness of business partners may deteriorate beyond expectations due to worsening economic conditions or other factors. The occurrence of bad debt losses poses a risk to business results and financial position. Although the Company continues to strengthen its credit management, there are limits to what can be achieved in the face of macroeconomic fluctuations.

In the event of a large-scale earthquake or other natural disaster, fire, accident, infectious disease outbreak, or similar occurrence, the Company's and its business partners' operational and logistics facilities as well as employees could be affected. This is expected to result in decreased net sales and the incurrence of costs for repairing or replacing facilities. There is no explicit disclosure in the securities report regarding the status of business continuity plan (BCP) development.