Lilycolor Co., Ltd.

The Company's business performance is affected by market fluctuations arising from changes in supply and demand, and profits tend to be concentrated in the second half of the fiscal year. In both the previous fiscal year and the current fiscal year, the Company recorded operating losses in the first half (−¥184 million and −¥177 million, respectively) and secured full-year profitability through second-half profits (¥407 million and ¥978 million). If deterioration in market conditions or a decline in demand in the first half were to persist, there is a risk that full-year business performance could decline significantly.

Vinyl, the material used in wallcovering products, the Company's core product, is manufactured on an outsourced basis and is directly affected by fluctuations in the prices of petrochemical-related products. Crude oil prices are highly volatile due to supply-demand balance and other factors, and increases in crude oil prices act as a factor increasing manufacturing costs, which may worsen the Company's business performance. If such cost increases cannot be passed on to selling prices, this could lead to a decline in the gross profit margin.

Full-year net sales for the current fiscal year were ¥33,207 million, down ¥596 million from ¥33,803 million in the previous fiscal year. In particular, first-half net sales declined by ¥1,352 million to ¥15,364 million, compared with ¥16,716 million in the first half of the previous fiscal year. If market fluctuations or a decline in demand continue, a further decrease in net sales could adversely affect business performance.

The Company strives to suppress the occurrence of non-performing receivables by setting credit limits according to customers' business scale and financial capacity and by obtaining guarantors, among other measures. However, an economic downturn or other factors could necessitate an increase in the allowance for doubtful accounts. Although the Company records allowances based on historical bad debt loss rates, in the event of a sharp economic deterioration, losses exceeding such historical rates could occur, adversely affecting the Company's financial position and business results.

The Company's head office and major locations are concentrated within Japan, and large-scale disasters such as earthquakes, fires, or floods, or the outbreak of a serious infectious disease, could delay, disrupt, or halt operations at these locations. Costs incurred in repairing damaged facilities and equipment pose a risk of adversely affecting the Company's financial position, business results, and cash flows.