KIKUSUI CHEMICAL INDUSTRIES CO.,LTD.

The Group's core products, architectural interior and exterior products, are affected by trends in housing-related public investment and private capital investment, and a contraction in demand due to an economic downturn may affect the Group's financial position and operating results. The construction and housing markets are highly sensitive to economic conditions, and the risk of declining sales is likely to materialize during macroeconomic downturns. Although the Group states that it will respond to the fullest extent possible upon recognizing the potential occurrence of such risks, no specific demand-leveling measures are described.

In the architectural finishing materials industry, price competition centered on general-purpose products is intensifying, and there are also concerns about heightened competition due to domestic reinvestment by rival manufacturers. Although the Group possesses proprietary technology, know-how, and patents, it recognizes that competition from similar products cannot be entirely prevented. If the Group's response to the competitive environment is insufficient, price declines and loss of market share could adversely affect its financial position and operating results.

The Group's raw materials are highly dependent on petrochemical feedstocks, and fluctuations in crude oil and naphtha prices significantly affect business performance. In addition, if procurement is disrupted due to a natural disaster or accident at a raw material manufacturer, there is a risk that the Group may be unable to fulfill its supply obligations to customers. The Group seeks to ensure stable procurement and cost reduction through material interchangeability, multiple sourcing, and global procurement; however, a significant rise in costs or a change in suppliers' policies may affect its financial position and operating results.

If manufacturing facilities are damaged by a sudden disaster, natural calamity, or unforeseen accident, production activities may be interrupted, potentially affecting the Group's financial position and operating results. Since the Group conducts sales activities nationwide, there is also a risk that normal business activities could become difficult due to a disaster occurring in a specific region. The Group seeks to minimize damage through the diversification of production sites and investment in safety equipment, but it may not be able to fully respond to events exceeding its expectations.

The Group's business is subject to regulations such as the Act on Confirmation, etc. of Release Amounts of Specific Chemical Substances (the Chemical Substances Control Law), the Building Standards Act, the Industrial Safety and Health Act, the Construction Business Act, and environmental and recycling-related laws and regulations, and the abolition or amendment of these regulations, or the introduction of new regulations, may affect business operations. Although the Group strives to comply with laws and regulations, there is a risk of increased costs in responding to tightened regulations, and of administrative sanctions or reputational damage in the event of non-compliance. If changes in the regulatory environment force changes to product specifications or capital investment, this may affect the Group's financial position and operating results.

The Group manufactures and sells products based on Japanese Industrial Standards, ISO 9001, and its own quality control standards, but if these standards are changed or new, unforeseeable requirements are established, there is a risk that the Group may be unable to meet the required performance. Although the Group states that it exercises the utmost care in quality control, responding to changes in standards may require additional development and capital investment, which may affect the Group's financial position and operating results.

If a major business partner experiences deteriorating management conditions or financial difficulties, or if a trading relationship is terminated due to a breakdown in trust, there is a risk of a sharp decline in sales and uncollectible receivables, which may affect the Group's financial position and operating results. It is suggested that there are sales destinations accounting for more than 10% of total sales, indicating an inherent concentration risk when dependence on specific business partners is high. The Group seeks to diversify its business partners through proactive sales and marketing activities, but the risk of a potential termination of trading cannot be entirely eliminated.

If business operations are disrupted by information system failures or unauthorized activities such as cyberattacks, this may affect the Group's financial position and operating results. Regarding the information systems used with Create Pastel franchise stores, the Group has established separation from its core systems and a backup framework, but risks pertaining to the system as a whole, including outsourced vendors, cannot be entirely eliminated. Although measures such as evaluation of outsourcing partner selection, maintenance contracts, and data backup have been implemented, there are limits to the Group's ability to respond to unforeseen circumstances.

Securing capable personnel is essential for expanding technology development and sales activities, but if the Group is unable to secure sufficient personnel due to intensifying competition for hiring, or if existing talented personnel leave the Group, business growth may be hindered, potentially affecting the Group's financial position and operating results. The Group has adopted a proactive hiring policy in line with its business expansion, but competition for talent in the construction and chemical industries is fierce, and securing technical personnel in particular may become a challenge.

The Group positions the development of new overseas markets, primarily in China, as an important priority, but despite carefully considering business plans in collaboration with local companies, there is a risk that the initially anticipated results may not be achieved, or that continuing the business may become difficult. Risks specific to overseas business, including political, economic, regulatory, and cultural factors, are inherent, and if the business does not progress as planned, there is a risk of investment losses and adverse effects on the Group's financial position.