KIMOTO CO., LTD.

In the High-Performance Materials Business, which accounts for the majority of the Group's earnings, if industry, market, and technological changes cannot be sufficiently anticipated and new product launches are delayed, or if price competition intensifies due to low-priced competing products from competitors or companies in other industries, profitability may not be maintained. There is also a risk that technological innovation in the industry could cause a sharp decline in existing demand. As countermeasures, the Group is strengthening the collection of competitive and market information and promoting differentiation through the development of high-value-added products.

The organic solvents used in the manufacturing process of functional films are subject to laws and regulations such as the Industrial Safety and Health Act, the Act on the Control of Poisonous and Deleterious Substances, the Fire Service Act, and the PRTR Act. If these regulations are revised or abolished, or if new legal regulations are established in the future, new capital investment may be required, which could affect operating results. The Group currently employs top-level technology to recover organic solvents and heat, and is focusing on transitioning to manufacturing processes that use less solvent.

In certain regions, legal protection of intellectual property rights is incomplete, and the possibility that the Group's products and technologies may be imitated or reverse-engineered cannot be completely eliminated. Although the Group actively protects its rights through patents and other intellectual property rights, the effectiveness of such protection has limits in certain regions. The distribution of counterfeit products poses a risk of loss of competitive advantage and reduced profitability.

Although the Group conducts active patent investigations, it is extremely difficult to completely confirm that it is not infringing on third-party intellectual property rights, and the possibility that third-party patents unknown to the Group exist cannot be ruled out. If a lawsuit is filed, responding to it may require significant costs and time, potentially adversely affecting business strategy and operating results. The Group has established a policy for case-by-case responses in cooperation with patent attorneys and lawyers.

If defects or other issues occur in products, loss of profit due to damages, loss of brand trust, and compensation costs and insurance premiums are anticipated, which could significantly affect operating results. Although the Group manufactures and sells products with an emphasis on customer satisfaction, it is difficult to completely eliminate the risk of defects occurring.

Since the Group owns multiple production sites and is actively investing in capital equipment, if significant deterioration in performance due to declining profitability or a decline in the market price of fixed assets occurs, an impairment loss may arise, affecting operating results and financial position. As risk mitigation measures, the Group is working to reduce manufacturing costs through improved manufacturing yield and waste reduction, increase development speed, and adopt a build-to-order production system.

If a natural disaster such as an earthquake, or a fire or explosion accident occurs at the plants located in Mie Prefecture, Ibaraki Prefecture, and Georgia (USA), production activities may be halted, potentially causing a significant impact on operating results. In addition, natural disasters or accidents in regions where raw material supplier plants are located, or supply adjustments due to power shortages, could also affect production. The Group addresses this by diversifying production locations for key products and strengthening cooperation with material suppliers.

In the Digital Twin Business, the Group handles customer information including personal data, and if such information is leaked, there are concerns about damage to the Group's credibility and impact on operating results. Manuals have been created to address the risk of information leakage, but threats such as cyberattacks continue to exist.

The Group maintains a certain level of raw material inventory to ensure stable supply to Japan, North America, East Asia, and Europe, and there is a risk that valuation losses on raw materials may arise due to sudden changes in market conditions. As countermeasures, the Group is strengthening information sharing between sales and suppliers and reducing long-term inventory risk through standardization of material types and sizes.