NANKAI PLYWOOD CO.,LTD.

Demand for storage-related building materials for housing is strongly dependent on the number of new housing starts. In addition to a mid- to long-term declining trend, there is a risk that a deteriorating market environment due to soaring housing prices and rising interest rates could significantly reduce the number of housing starts. Such a decline in demand would directly affect the Group's principal revenue source and could have a material impact on its business performance and financial condition.

Procurement of raw materials such as falcata wood through the Indonesian subsidiary is a source of the Group's competitiveness. However, changes in local political and economic conditions, natural disasters, and the materialization of geopolitical risks could cause delays in material procurement or increased costs. If the stability of the procurement system is impaired, this could affect production activities and business performance.

The Group positions its French subsidiary, NP ROLPIN SAS, as a strategic hub for the European plywood market, but there is a risk that business expansion may not proceed as planned due to a deterioration in the European economy or amendments to local laws and environmental regulations. If it becomes difficult to secure competitiveness in the European market, this could affect the Group's overall overseas business strategy.

Foreign currency-denominated transactions arise from the procurement of materials from overseas subsidiaries, and fluctuations in exchange rates affect assets, liabilities, and purchase prices. Although the Group hedges using forward exchange contracts and currency options, sharp exchange rate fluctuations could affect business performance and financial condition through product costs.

Amid persistently high overall building materials prices due to soaring material and energy costs, there is a risk of intensifying price competition within the industry. The Group is working to reduce costs through production rationalization and overseas procurement, but if it becomes difficult to maintain sales prices due to intensifying competition, this could adversely affect profitability.

In addition to large-scale domestic natural disasters such as a Nankai Trough earthquake, there is a risk that the production and procurement system could be significantly damaged if disasters caused by volcanic eruptions in Indonesia or global climate change occur on a broad and severe scale. If the damage is extensive, this could have a material impact on the Group's business performance and financial condition.

NP ROLPIN SAS has continued to underperform since its acquisition in 2014, resulting in a capital deficiency of ¥4,605 million as of the end of March 2026. The Company has recorded a valuation loss on shares of affiliated companies of ¥1,820 million related to shares in the company, and an allowance for doubtful accounts of ¥4,605 million related to loans receivable. If performance does not recover going forward, there is a risk of recording additional losses.

ROLKEM SAS, a wholly owned subsidiary of NP ROLPIN SAS, continues to face difficulty in achieving its profit plan due to in-house production by major customers and rising raw material prices, resulting in a capital deficiency of ¥1,289 million as of the end of March 2026. The Company has recorded an allowance for doubtful accounts of ¥1,289 million related to loans to the company, and there is a risk of additional losses if performance does not recover.

The Company has made a capital investment of €1 million and a loan of €35 million to NP ROLPIN SAS, and a working capital loan of €10 million to ROLKEM SAS. If the net asset value of both companies continues to deteriorate, there is a risk of recording additional losses. The gap between the management turnaround plan and actual results is widening, and there is a possibility of a further increase in financial burden.

In business expansion in the European plywood market, there is a risk that amendments to local laws and environmental regulations could affect business costs and product specifications. If the Group is slow to respond to tightening regulations, this could result in a decline in competitiveness and additional cost burdens for the European business centered on the French subsidiary, adversely affecting business performance.