NAKABAYASHI CO.,LTD.

The progress of digitalization and paperless trends is shrinking markets such as library binding and Corporate Diaries & Printed Materials, and this could increase the impact on consolidated results. On the other hand, the trend toward reducing plastic use and plastic waste is increasing demand for paper materials, and the Company is responding by focusing on the development and sale of environmentally friendly products and undertaking library operations such as designated management of public libraries.

The continuing decline in Japan's birthrate is reducing demand for stationery-related products such as notebooks and for child safety seats, which could further affect consolidated results. As this reflects a structural change in demographics, there are concerns that the market size will continue to shrink over the medium to long term.

Due to reliance on imports for some products, fluctuations in exchange rates, including the recent sharp depreciation of the yen, could affect consolidated results. Although the Company hedges risk through forward foreign exchange contracts and other measures, it explicitly states that not all risks can be avoided.

The Company procures its main raw materials, such as base paper and resin, from domestic and overseas manufacturers, and rising raw material prices driven by surging crude oil prices could affect consolidated results. Although measures such as diversifying suppliers are being implemented, there is no guarantee that all cost increases can be passed on to product prices.

The Company handles customers' personal information in its business solutions services (such as data print services) and online retail business, and if an information security incident occurs due to a cyberattack or other cause, this could lead to a decline in social credibility and brand image, payment of damages, and legal penalties. The Company has obtained the Privacy Mark certification and is working to manage customer information, but complete prevention is difficult.

In the past, the Company received a cease-and-desist order and a surcharge payment order from the Japan Fair Trade Commission regarding bidding related to the Japan Pension Service, and has a record of having paid the amount of damages claimed by the Japan Pension Service. The Company has since established a Group code of ethics and compliance manual, implemented a bidding record reporting system, and set up a system for periodic checks by the Representative Director, President and Executive Officer, in order to prevent recurrence.

If the performance of affiliated companies deteriorates significantly and it is determined that business will not develop as planned, or if the market value of their shares declines, impairment of shares in affiliated companies may become necessary, which could affect the Company's results. While the Company is working to realize Group synergies and enhance corporate value, the risk that plans will not be achieved due to changes in the external environment cannot be eliminated.

If the market value of held fixed assets declines significantly or profitability deteriorates, an impairment loss may occur, which could have a material impact on consolidated results. It is also explicitly stated that if there are significant changes in estimates of future taxable income, deferred tax assets may need to be written down, which could similarly have a material impact on consolidated results.

As the Company's main products are paper products, it recognizes climate change as an important risk factor, and raw material procurement is expected to be directly affected by climate change. The Company is advancing measures in line with the TCFD framework, including tracking and disclosing greenhouse gas emissions and continuously reviewing procurement methods.

Due to the shrinking labor force and intensifying competition for talent, the Company may be unable to secure sufficient personnel necessary for business growth, and revisions to hiring plans due to sharp exchange rate fluctuations or economic uncertainty could affect business operations and results. As countermeasures, the Company is working to continuously improve organizational issues through providing educational opportunities, developing performance-based evaluation and compensation systems, and conducting engagement surveys.