TOPPAN Holdings Inc.

As the volume of confidential and personal information handled increases due to BPO business and DX promotion, cyberattacks including ransomware are becoming increasingly sophisticated and elaborate. With the expanding use of generative AI and AI agents, risks of LLM tampering and remote manipulation are also increasing, and if information leakage or system outages occur, there are concerns about deterioration of social reputation and impact on business performance. As countermeasures, the Company has established CSIRT functions through TOPPAN-CERT, implemented technical measures such as endpoint behavior detection and network monitoring, and conducts shadow AI detection and monitoring.

The market environment is undergoing significant change, particularly in the existing printing business, due to exchange rate fluctuations, geopolitical risks, rapid innovation in AI and other information technologies, and growing sustainability awareness. If measures to address these changes are insufficient, it may impact the Group's business performance. In response, the Group is promoting a shift toward overseas packaging business, global secure business, and semiconductor-related business, along with structural reform of low-profitability businesses, advancing the transformation of its business portfolio.

There exist both transition risks, such as stricter environmental regulations and demands for decarbonization, and physical risks, such as damage to business sites from severe disasters like floods and disruption of supply chains. Damage to natural capital directly affects raw material procurement and water resource security, and failure to respond to demands for nature restoration could lead to a decline in social trust. The Group addresses this through the operation of a PDCA cycle involving SBT certification acquisition, use of an Internal Carbon Pricing (ICP) system, and introduction of renewable energy, as well as the application of sustainable procurement guidelines across the entire supply chain.

Geopolitical risks arising from wars, conflicts, and inter-state confrontations, as seen in the situation in the Middle East and elsewhere, are increasing, and difficulties in procuring raw materials and energy, price surges, tightened import/export regulations, and restrictions on fund settlements are affecting the Group's business. There is also a risk of business suspension or withdrawal due to prolonged or escalating conflicts or new disputes. The Group addresses this through continuous monitoring of country risk assessments, a business continuation/withdrawal decision-making framework based on risk appetite criteria, and securing multiple procurement sources for critical raw materials.

Price surges and supply restrictions due to geopolitical risks, rising energy prices and logistics disruptions, system failures at business partners caused by cyberattacks, and compliance violations, among other factors, may hinder stable procurement of raw materials and energy and the provision of products and services. If these occur, they may impact business performance and financial position through a decline in social trust and the incurrence of additional response costs. The Group addresses this through the formulation and sharing of sustainable procurement guidelines, securing multiple procurement sources for critical raw materials, and establishing a supplier hotline.

As the Group operates across numerous domestic and overseas locations and conducts business with a wide variety of industries, it is required to comply with a broad range of laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, the Antimonopoly Act, and anti-bribery laws. If serious misconduct or inappropriate conduct or compliance violations by employees occur, in addition to legal penalties and claims for damages, this may impact business performance and financial position through loss of social trust and customer defection. The Group addresses this through thorough enforcement of the TOPPAN Group Code of Conduct, establishment of internal whistleblowing contact points, and operation of overseas operating guidelines.

Securing and developing excellent personnel with advanced technical capabilities, planning and proposal abilities, and adaptability, including in response to the rapid advancement of AI technology, is key to business development. If the Group is unable to secure or develop excellent personnel, it may be unable to continue growing in the future. The Group addresses this through establishing diverse recruitment channels, providing education to improve AI literacy, and introducing a talent management system to build a foundation for shifting personnel toward growth businesses.

In strategic alliances, joint ventures, and corporate acquisitions aimed at acquiring new technologies or entering new markets, various factors may make it difficult to continue an alliance or may prevent the initially expected effects from being achieved, potentially impacting business performance. Uncertainty is particularly high for investments in startups and overseas companies. The Group addresses this through an approval process involving a small-scale investment review committee, an investment contract review committee, and the management committee, as well as regular post-investment monitoring and due diligence utilizing external research institutions.

Significant changes in interest rate conditions or credit rating downgrades may lead to increased fundraising costs or difficulty in raising necessary funds, while inventory valuation losses due to declining demand and difficulty in collecting trade receivables due to the deteriorating financial condition of customers may impact business performance and financial position. The Group addresses this through diversifying fundraising methods and terms, utilizing interest rate swaps, setting credit limits with regular credit reviews, and thoroughly managing inventory quality.

The rapid social implementation of AI technology carries inherent risks, including misjudgments caused by hallucination, business continuity risk in the event of system failures due to excessive reliance on AI for core operations, stagnation of human resource development and loss of organizational flexibility due to excessive reliance on AI, and the risk of losing social roles such as regional employment and human resource development. While currently positioned as an emerging risk with relatively low likelihood and impact, it may have a significant impact in the future. The Group addresses this through the formulation of and education on the TOPPAN Group AI Ethics Policy, collaboration with the company-wide AI Promotion Office, and the establishment of usage guidelines.