Business and Other Risks

The Nippon Paint Group operates a paint and coatings business on a global scale. We believe that proper understanding and management of risks are essential for the sustainable growth of our businesses and have established a risk management system based on our Basic Policy on Internal Control Systems. This section contains forward-looking statements that are based on our judgments as of the end of the current fiscal year, as disclosed in the Annual Securities Report.

(1) Risk Management System

Based on the Asset Assembler model, Nippon Paint Group implements a risk management system where the groups of subsidiaries, organized into Partner Company Groups by region or business segment, autonomously manage their risks in a decentralized manner. The Representative Executive Officers & Co-Presidents, who have the highest responsibility for overseeing this system, routinely update the Board of Directors on the status of risk management activities at Partner Company Groups. The Board then reviews and oversees the handling of major risks that could impact our Group's overall management and operational activities.
These risk management processes are predominantly carried out by the Partner Company Groups themselves, who conduct regular self-inspections of risks in alignment with our Basic Policy on Global Risk Management. Annually, the Partner Company Groups conduct a thorough review to pinpoint areas needing enhancement, develop corresponding improvement strategies, and set implementation timelines. They employ a risk-based methodology to identify critical risks and present their findings to the Representative Executive Officers & Co-Presidents. Following this, the Co-Presidents participate in important management meetings within each region and business sector, oversee the progress of business activities, and steer the implementation of effective, continuous risk mitigation measures. They promptly relay these insights to the Board of Directors.
Additionally, our audit department evaluates the significant risks identified through the control self-assessments performed by the Partner Company Groups and reports the findings to both the Audit Committee and the Representative Executive Officers & Co-Presidents. Furthermore, we disseminate the results of these analyses to the heads of internal audit at major partner companies to incorporate them into regional internal audit plans, thereby improving oversight and the overall effectiveness of our Group’s risk management framework.

(2) Risk Associated with Business Operations

① Risks associated with changes in our markets

The Group manufactures and sells paint and paint-related products for use in a broad range of industries including construction, automobiles, metal products, construction materials, electrical machinery, and ships mainly in Asia including China, as well as in Japan, Oceania, the Americas, and Europe. As a result, the Group performance may be affected by economic and financial market conditions in the countries and regions where we operate. Uncertainties in the business environment—such as supply chain disruptions and changes in paint demand and raw material markets—have increased due to geopolitical issues, economic slowdowns precipitated by global inflationary concerns and monetary tightening, natural disasters, and other factors. Asia, particularly China, is a key region for our operations, making us susceptible to changes in China’s economic conditions and political climate. A greater-than-expected deterioration and stricter-than-expected regulations in the real estate market could affect our operations.
Our goal is sustainable growth by taking actions across the Group, such as expanding into new geographic markets through M&A, creating new demand through the development and sale of anti-viral and environmentally friendly products, strengthening brands in every region, monitoring supplier trends, and enhancing the entire Group’s supply and procurement capabilities. If the business environment deteriorates beyond our expectations, our financial position and performance may be adversely affected.

② Risks related to selling prices

We set selling prices by considering raw material prices, customer needs, competitor moves, and other factors. We seek to reduce vulnerability to raw material price fluctuations through measures such as negotiating price revisions as necessary while monitoring raw material prices, diversifying and strategically selecting suppliers, and evaluating and using alternative materials less susceptible to price changes. However, there is no guarantee we can offset the impact on earnings from raw material price increases. We also work to maintain and increase our competitive advantage by selling technically advanced products, reinforcing support for sales channels, and building new channels. Nevertheless, we may be unable to pass increases in raw material prices on to customers, or there may be delays in passing on price increases due to competition and other factors. If these risks materialize, our margins may decline, adversely affecting our financial position and operating results.

③ Risks related to overseas business activities

Our Group is aggressively expanding overseas and operates as a multinational group. In FY2025, overseas sales (after elimination of intersegment transactions) accounted for approximately 90% of total revenue. Principal risks in overseas activities include the following, which, if they occur, may adversely affect our businesses, financial position, and performance.

(a) Exchange rate and price level volatility risks

Financial statements of our overseas subsidiaries are prepared in foreign currencies and translated into yen using average rates for the period or rates at period-end. Therefore, changes in exchange rates against the yen and the adoption of hyperinflationary accounting reflecting price changes under a hyperinflationary environment could affect our financial position and performance, even without significant changes in local-currency earnings.
We operate globally through overseas subsidiaries with manufacturing bases worldwide. With a focus on local production for local consumption, exchange rate movements do not significantly impact overall product competitiveness. However, appreciation of a currency at a manufacturing or sales base could reduce our price competitiveness versus competitors, potentially affecting our financial position and operating results.

(b) Changes in political and economic conditions

Unforeseeable events—such as major changes in laws, regulations, and tax systems; rapid shifts in political and economic conditions; and social and political instability (terrorism, war, disasters, pandemics)—may arise in countries and regions where we operate. If such developments result in difficulties in procuring raw materials, sharp increases in raw material prices, the suspension of operations at manufacturing sites, or disruptions to manufacturing and shipments due to interruptions in logistics, they could adversely affect the Group’s financial position and operating results. Our sales depend significantly on Asian markets, particularly China. Consequently, economic, political, and other conditions in China may affect our financial position and operating results.

(c) Compliance with foreign laws and regulations

The Group is subject to environmental regulations and laws related to environmental protection, product liability, occupational health and safety, labor relations, foreign investment and currency controls, national security, consumer protection, competition policy, taxation, bribery, and export control in the countries and regions where it operates. Violations may result in civil, criminal, or regulatory penalties, affecting our financial position and performance as well as our brand image and social credibility.

(d) Other risks

Other risks include differences in business practices, local working conditions (including potential labor disputes), and securing excellent management, engineers, and other human resources. The Company delegates significant authority to Group Partner Companies based on our policy of respecting independence and autonomy. This enables the Company to retain and recruit local experts and operate in compliance with local laws, regulations, working conditions, and business practices. Nonetheless, there is no guarantee of promptly identifying and responding to all risks. Excessive costs for new market entries and new business fields, or ineffective management of overseas subsidiaries, could adversely affect the Company’s financial position and operating results.

④ Risks associated with raw materials

(a) Procurement of raw materials

A significant portion of our raw materials are general-purpose. If demand for these materials surges for non-paint uses, procurement could become difficult. Heightened economic security concerns may also lead to stockpiling of resources, thereby hampering procurement. Disruptions in maritime logistics and port container handling could impede international raw material supply. Such restrictions may prevent us from fulfilling supply obligations to customers.
To minimize the impact of natural disasters, accidents, and other unforeseen events, we seek stable procurement by ensuring material interchangeability, using multiple suppliers, and diversifying procurement regions. However, these actions cannot completely eliminate the impact of production suspensions at raw material manufacturers and supply chain disruptions. If product supply is delayed due to procurement difficulties, our financial position and performance may be adversely affected.

(b) Price fluctuations of raw materials

We depend heavily—about 50%—on petrochemical-based raw materials due to product characteristics, and raw material prices are affected by crude oil and naphtha prices. Crude oil prices are influenced by interrelated factors such as OPEC output, natural gas markets, geopolitical risks (Ukraine, the Middle East, etc.), U.S. monetary policy, U.S.-China trade friction, the rebound of shale oil production, Middle Eastern pricing policies considering exchange rates, and declining gasoline demand due to fuel cell vehicle penetration. To stabilize procurement, we mitigate price volatility risk by strengthening relationships with key suppliers, diversifying production areas, and using long-term supply contracts. However, these actions do not fully eliminate the impact of oil and naphtha price changes. If raw material prices rise sharply, or if we cannot pass through increases in a timely and rational manner, our financial position and performance may be adversely affected.

⑤ Risks related to human resources

As we relentlessly pursue growth under the Asset Assembler model, securing, promoting, and retaining diverse professionals—including management teams across principal operating regions—becomes increasingly critical, as does cultivating and sustaining a diverse pool of skilled talent in each region.
Challenges differ by region, including the risk of losing capable employees and inadequate succession. Timely measures are essential to mitigate such risks. Rising turnover may increase personnel costs through higher recruitment and training expenses, impede knowledge and skill transfer, and lower efficiency and productivity. Failures in our human resource strategy, unexpected resignations, or delays in filling critical management roles could erode intangible assets such as expertise and human capital, weakening competitiveness and strategy execution.
Under these circumstances, we identify two primary human resource-related risks: (a) recruitment of competent talent and (b) retention of our existing employees.

(a) Recruitment of competent talent

Failure to promptly fill key positions with individuals who have the requisite skills and potential, insufficient development of recruited talent, or challenges in retaining them could delay development and production and increase risks of technology or research leakage. We actively recruit top talent year-round and continuously improve training programs to enhance on-the-job education and skill development, aiming to maximize the capabilities of our diverse workforce.
We also maintain external networks and actively recruit from the job market.
Furthermore, we are working to establish fair evaluation and treatment systems to enhance engagement, foster talent retention, support skill development, and enable employees to reach their full potential.

(b) Retention of our existing employees

As the labor market becomes more dynamic, the loss of skilled employees could hinder the accumulation of expertise and technical capabilities, potentially diminishing long-term efficiency and productivity.
Delays in identifying and appointing next-generation management could result in the loss of valuable managerial expertise, weakening organizational capacity and undermining competitive effectiveness and strategy execution.
As countermeasures, we are enhancing our corporate brand strength through PR activities highlighting our initiatives such as managing from the perspective of SDGs and ESG, thereby boosting our attractiveness and sense of belonging to improve retention. We also leverage our global network to implement “borderless utilization of talent,” strengthening our ability to attract and retain skilled professionals and ensuring seamless succession for key positions.
Despite these initiatives, there remains a risk that anticipated outcomes may not be achieved, which could adversely affect our business performance, financial condition, and operating results.

⑥ M&A risks

Our Group aims for sustainable growth through domestic and overseas M&A that contribute to MSV. We made DuluxGroup Limited and Betek Boya ve Kimya Sanayi Anonim Sirketi wholly owned subsidiaries in 2019; completed the full integration of the Asian joint venture with Wuthelam and acquired the Indonesia business in 2021; acquired Cromology Holding SAS and DP JUB delniska druzba pooblascenka d.d. in 2022; N.P.T. s.r.l. in 2023; completed the acquisitions of Nippon Paint (India) Private Limited and Berger Nippon Paint Automotive Coatings Private Limited in 2024; and completed the acquisition of AOC in 2025. Our criteria emphasize returns exceeding the cost of capital and EPS accretion. We prioritize potential targets with financial discipline and consider market trends, customer needs, target performance and financials, technological superiority, competitiveness, our business portfolio, and risk analysis results. Nonetheless, if we cannot complete an acquisition as planned; if post-acquisition market or competitive conditions change significantly; if the acquired business is not operated or expanded as planned or synergies are not realized; if additional expenses arise; if we must recognize impairment of goodwill; or if substantial borrowings make it difficult to maintain financial discipline, our financial position and performance may be adversely affected. Furthermore, if post-merger integration does not progress as expected and expected benefits of synergies and scale are not realized, or if we are unable to retain key management and employees of the acquired company, or maintain relationships with key customers, suppliers, and other business partners, we may face substantial management policy changes and earnings declines due to downsizing, loss of economies of scale, and other factors, which may adversely affect our financial position and operating results.

⑦ Customer needs and preferences

Our businesses depend on continued demand for our brands and products worldwide. Sustainable growth requires accurately understanding customer and consumer preferences and needs, and developing and selling attractive products through both innovation in existing products and creation of new products. Factors include our ability to develop and produce innovative products that meet expectations and the effectiveness of marketing, including sales, advertising, and product lifecycle management. Failure to understand customer and consumer preferences and needs, inaccurate demand forecasting, or product innovation requiring more time and expense than expected may adversely affect our financial position and operating results.

⑧ Risk of shrinking demand due to technological innovation

Using coating technologies, the Group strives to bring color, comfort, and security to various scenes of people’s lives. As stated in our Purpose, “Enriching our living world through the power of Science + Imagination,” we have focused for many years on leveraging our technological strengths to develop products that solve social issues. Advanced expertise is essential for innovation to address social issues and meet customer needs, as well as for competitiveness such as stable product supply. We are strengthening collaboration among engineers in Japan and overseas and our external networks and accurately identifying global customer and consumer needs and market changes, thereby continuously providing innovative solutions. However, if technological innovation outpaces our estimates, we may be unable to develop new technologies or products in a timely manner, or competitors may develop and sell products far exceeding our existing technologies. These events could reduce our market share in Japan and other countries and negatively impact our financial position and performance.
For example, the Group faces a more fundamental downside risk, mainly involving customers in the automotive coatings business, from technological innovations that reduce or eliminate the need for paint and coatings. Automakers and materials engineering companies are developing alternatives to automotive paint—such as decorative films—from the perspective of reducing costs and environmental impacts. If such alternatives become mainstream due to technological innovation together with carbon-neutral policies, paint demand may decline or we may need to make large investments to switch to alternative products, adversely affecting our financial position and operating results.

⑨ Competition

The Group faces intense competition in paint and coatings, as well as adjacencies, in Japan and overseas. Increased competition may adversely affect the Group’s market share and margins due to the loss of regional or major global customers or weaker pricing power. In addition, customer consolidation in businesses such as automotive and industrial coatings may adversely affect prices and margins.
In the paint and coatings business, significant economies of scale can be realized in areas such as raw material procurement, production processes, supply chains, distribution, research and development, and regulatory compliance, making the benefits of integration substantial. In recent years, just as the Group has expanded its business overseas through M&A, other major global players have also sought to strengthen and expand their industry positions through M&A, and this trend is expected to continue. If competing companies consolidate and achieve greater scale than the Group, there can be no assurance that the Group will be able to compete effectively with such competitors in terms of capital, technology, financing, and other factors. As a result, if the Group’s market share declines or pricing pressure intensifies, the Group’s financial position, operating results, and other aspects of its business may be adversely affected.

⑩ R&D activities

Our Group invests considerable resources in R&D to maximize the appeal of paint and coatings through technology by strengthening collaboration among engineers in Japan and overseas and our external networks to provide products and services that address social issues. Currently, we focus on developing technologies for new products in fields such as contributing to a smart society, reducing environmental burdens, and lowering social costs, as well as continuous new products in our core businesses. We believe these initiatives are consistent with changes in social environments, responses to future products and untapped market opportunities, and technological progress across industries. However, if our continuous R&D investments do not generate commensurate earnings or profitable products, or if the market structure changes significantly, our businesses, financial position, and performance may be adversely affected.

⑪ Dependence on third parties for manufacturing and sales

The Group outsources part of product manufacturing and sales to external third parties. As these third parties are affiliates or long-term partners, we believe the likelihood of a deterioration in relationships with the Group is low at present. However, if relationships with outsourced parties deteriorate or if competitive relationships arise with the Group, our businesses, financial position, and performance may be adversely affected. Similar adverse impacts may arise if the outsourced parties’ operations are hindered due to deteriorating business conditions, disasters, or other events. Furthermore, if the quality and other aspects of the outsourced parties’ manufacturing and sales activities fail to meet the Group’s standards, or are inferior to those of competitors or their subcontractors, there may be adverse effects on the quality and reputation of our products and services, as well as on manufacturing and sales activities and brand value.

⑫ Risks related to damaging the brand value

We have high market shares in major markets such as Asia including China, Australia, and Japan, and believe our brands have high recognition among customers and consumers. We continuously allocate resources to brand building to maintain and improve recognition. However, brand value may be damaged by complaints and rumors concerning product safety or quality, accidents, misconduct, privacy breaches, and scandals involving management or employees, as well as complaints and negative reputations arising from factors beyond the Group’s control. Even if partially or wholly unfounded, such complaints and rumors may harm social perceptions of our business. If trust in our Group or products is damaged, consumer demand and brand value may decline significantly, adversely affecting our businesses, financial position, and operating results.

(3) Risks associated with achieving the Medium-Term Strategy and other goals

As described in 【1 Management Policy, Operating Environment, and Management Issues, (1) Management policy and management strategy, etc., (iv) Medium- to long-term management strategy and financial targets】above, the Group announced its Medium-Term Strategy in April 2024 and has updated it regularly since then. Our ability to achieve the Strategy’s goals will be affected by many risks and challenges, including those described in 【Section 2 Business Overview, 3 Business and Other Risks】. These include risks that markets in our operating regions and product sales will not grow as expected; that we cannot increase market share in each country and for each product; that we cannot execute capital investments included in the Strategy or that such investments will not produce expected benefits such as productivity improvements; that relationships with key customers will deteriorate due to insufficient improvement in our technological strengths and quality assurance; that we cannot effectively manage or utilize subsidiaries in each country; and that our costs will increase or our competitiveness will be undermined due to responses to environmental regulations.
In formulating the Strategy, we made various assumptions and forecasts, including those concerning domestic and overseas market environments, corporate actions, competition, legal and regulatory changes, technological innovation, foreign exchange and raw material price fluctuations, and overall business conditions. If these assumptions and forecasts differ from future events or if we cannot timely change strategies or operations in response to changes, we may be unable to achieve the Strategy.

(4) Risks associated with our financial position

① Impairment of goodwill and other intangible assets

The Group booked goodwill and other intangible assets arising from M&A in its consolidated statement of financial position. As of the end of FY2025, goodwill and other intangible assets amounted to \1,468,989 million and \614,148 million, respectively.
Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment every fiscal year regardless of impairment indications. The recoverable amount is measured as the higher of fair value less costs of disposal and value in use at the cash-generating unit level.
Assumptions used in determining fair value less costs of disposal, as well as those underlying estimates of future cash flows and discount rates used in calculating value in use, including cash flows expected to be generated by the cash-generating units over their useful lives and upon disposal thereafter, may be affected by changes in economic conditions. As a result, there is a risk that the amount of impairment losses recognized in the future with respect to goodwill and intangible assets with indefinite useful lives may be subject to material revision. Any such revision could adversely affect the Group’s financial position, operating results, and other aspects of its business.

② Interest-bearing debt and financing

We procure funds through borrowings from financial institutions. As of the end of FY2025, total borrowings (excluding those due within one year) were \1,297,704 million.
Long-term borrowings carry fixed and floating rates. If interest rates rise, we may incur additional burdens in respect of such interest-bearing debt, adversely affecting our businesses, financial position, and performance.
Our cash flows may be adversely affected by financial position factors such as interest-bearing debt ratios, economic downturns, financial market declines, rising interest rates, deterioration in our credit standing, including a downgrade by external rating agencies, or downward revisions in sales and earnings outlooks. Terms for equity or debt financing may worsen or access to funding may be restricted, potentially negatively affecting our businesses, financial position, and operating results.

③ Risk that capital expenditures do not produce profits

To achieve MSV, the Group must continually invest in capacity expansion and productivity improvement. We will continue to capture business opportunities and make investments to improve quality, risk management systems, and profitability. Specifically, we will prioritize investments in supply chain logistics improvements including digitalization technologies, maintenance and upgrades of aging facilities, workplace safety, streamlining and IT investment, R&D, and environmental protection. Although we will flexibly implement capital expenditure plans in line with changes in the business environment, capital expenditures may not yield sufficient returns. Increased capital expenditures and depreciation, etc. may adversely affect the Group’s financial position and operating results.

(5) Risks associated with Laws and Regulations

① Product quality assurance and product liability

The Group has established a quality assurance system by implementing rigorous design reviews and strengthening its quality control framework, and is working to improve the quality of its products. The Group also maintains product liability insurance. However, such insurance may not be sufficient to cover all losses. Product defects or quality issues, and any resulting property damage, personal injury, or other harm, may arise due to a variety of factors. In such cases, the Group may be required to recall products, suspend or delay production, or implement a large-scale recall, and may also be subject to claims for damages from third parties based on product liability. In addition, the Group may face order cancellations, claims for damages, or requests from customers to strengthen its quality control system. Any such event could adversely affect the Group’s social credibility and, through the recognition of product warranty or compensation-related provisions and otherwise, adversely affect the Group’s financial position, operating results, and other aspects of its business.

② Intellectual property

The Group has established rules for the management of intellectual property, recognizes intellectual property as an important asset, seeks to accumulate and utilize it as a management resource, and respects the intellectual property rights of others. The Group has also established a framework to protect its intellectual property, including managing technical information constituting intellectual property in accordance with information management rules and storing such information in a dedicated technical information database to prevent unauthorized disclosure. However, if technical information constituting the Group’s intellectual property is leaked outside the Group or its intellectual property is otherwise infringed by employees, including former employees, or by third parties, including outsourced manufacturers and sales agents, or if disputes concerning intellectual property arise with third parties in the future, the Group’s financial position, operating results, and other aspects of its business may be adversely affected.

③ Compliance with environmental and other laws and regulations

The Group examines compliance with laws and regulations at various stages including raw material selection and product development, and works on the development and introduction of sustainable products such as marine environment-friendly products, anti-viral products, and low-VOC products that contribute to addressing social issues in anticipation of future regulatory tightening and aim to contribute to the Group’s businesses from a long-term perspective. The Group also complies with regulations related to factory operations and sets targets to reduce negative environmental impacts. Furthermore, the Group has established the “Group Procurement Policy” and conducts procurement activities with its suppliers based on social responsibility. However, laws and regulations related to the paint industry—environmental, chemical, health and safety—are being revised and tightened, particularly in China and Europe. If such regulations become stricter than expected or the Group fails to comply in time, costs for responding to regulatory changes may increase, manufacturing and sales activities and procurement activities may be restricted, or the Group may be subject to administrative dispositions. Failure to comply may subject the Group to fines and other dispositions by regulatory authorities, as well as costs associated with decommissioning and restoration obligations, adversely affecting the Group’s financial position and operating results.

④ Compliance and litigation

As the Group operates globally, it is subject to various laws and regulations in Japan and other countries where it operates. While the Group endeavors to comply with such laws and regulations, additional costs may be incurred to ensure compliance, which may adversely affect the Group’s financial position and performance. In addition, changes in laws, regulations, or legal interpretations may make compliance difficult, and if compliance violations occur, the Group may be subject to measures or dispositions by regulatory authorities. Depending on the nature of such measures or dispositions, the Group’s business operations may be hindered and the Group’s financial position and performance may be adversely affected.
Furthermore, the Group faces the risk of lawsuits filed by consumers, business partners, employees, and others in various countries and regions regarding product liability, breach of contract, labor issues, and other matters. Depending on the results of such litigation, etc., the Group may be ordered to pay a large amount of damages, etc., which may have an adverse effect on the Group’s business, financial condition and operating results, as well as brand image and social credibility.

(6) Natural Disasters and Accidents

① Major natural disasters

Headquartered in Japan, the Group operates in multiple regions including Asia, North America, Europe, and Oceania and may be affected by diverse natural disasters and weather events that may occur in each region. Accordingly, the Group positions disaster prevention and mitigation and crisis management systems as important initiatives to minimize damage and losses from natural disasters. The Group is also developing digital supply chains (including the use of digital tools and methods to enable remote work and reduce complexity) and is rebuilding supply chains from a BCP perspective. However, if major natural disasters occur—particularly large earthquakes in Japan, Indonesia, Türkiye, or other countries; tsunamis exceeding expectations; large wildfires associated in part with rising temperatures linked to global warming; large-scale flooding caused by massive typhoons; or increases in electricity procurement costs resulting from severe cold waves—our procurement of raw materials, product manufacturing, shipments could be disrupted. This could impair our ability to provide a stable supply of products to customers, and as a result, adversely affect the Group’s financial position and operating results.

② Fires and explosions

Due to the nature of our business, there is a risk of explosions, fires, and emissions or releases of toxic and harmful substances. The Group is continually strengthening safety systems for handling hazardous substances and chemicals to prevent accidents, providing thorough safety education at factories handling hazardous materials and to workers engaged in such operations, and further switching to and improving water-based materials (non-hazardous) to improve safety at factories and sites. Nevertheless, if fires or explosions occur at the Group, this may necessitate temporary suspension of operations and adversely affect the Group’s financial position and operating results.

③ Risks associated with the spread and continuation of viral infections

The spread or continuation of viral infections may obstruct or restrict the Group’s operations due to factory closures, restrictions, or voluntary reductions in operations; workforce shortages; or problems with procurement of raw materials and equipment and logistics of the Group’s products, making all or part of the Group’s operations difficult. A global economic slowdown may negatively affect demand and prices for the Group’s products, and infections among the Group’s employees may require temporary suspensions, adversely affecting the Group’s financial position and operating results.
To address these risks, the Group has established appropriate management systems for prevention and containment. In addition, given the geographic breadth of the Group’s businesses, the Group monitors production, sales, inventory, and logistics globally and takes various measures to minimize the impact of viral infections.

(7) Risks Associated with Climate Change

① Long-term risks

Given that the Group operates in geographically extensive regions, it may be physically affected by natural disasters and abnormal weather in each region. In addition, based on domestic and overseas policies and regulations on climate change and market demands, the Group is promoting the development and introduction of environmentally friendly products and is also setting targets for reducing greenhouse gas emissions from production processes, etc. and taking concrete measures to reduce emissions. However, the Group’s businesses may be affected by tightening of these regulations based on government policies of each country aimed at realizing a decarbonized society and global trends, including substantial reduction targets for greenhouse gas emissions including in automakers’ production processes. Specifically, if new tax burdens related to greenhouse gas emissions arise or if costs for procuring renewable energy increase beyond expectations, the Group’s financial position and operating results may be adversely affected.

② Short-term risks

The Group’s products are used in many industries, including automobiles, buildings, building materials, structures, metal products, electrical machinery, and ships. If abnormal weather events such as typhoons and heavy rains, which have increased in recent years due to climate change, cause significant damage to the Group and its supply chains, production or shipments may be suspended for long periods until recovery. Abnormal weather such as cool summers, warm winters, and prolonged rain may also affect industries to which the Group supplies products. In such cases, the Group’s financial position and operating results may be adversely affected.

(8) Other Risks

① Information security

The Group relies on information and IT systems to conduct transactions accurately and efficiently, provide information to management, and prepare financial reports.
The Group has established backup procedures, disaster recovery measures, and information system security guidelines to securely store personal information and ensure thorough compliance with security procedures; however, our systems could be damaged by unforeseen events caused by cyberattacks.
Cybersecurity incidents may result from deliberate attacks by malicious actors or from unintended events. Such incidents could include unauthorized access to or compromise of our internal systems, malware infections—including ransomware and computer viruses—and other cyberattacks, as well as the leakage or deletion of confidential information, any of which could impair our ability to carry out business operations.
These incidents include unauthorized access to our systems, malware (including ransomware and computer viruses), phishing, human error, and other events resulting in security violations, confidential information leakage, or asset outflows.
Such problems may lead to business suspension, response costs, leakage of customer or confidential information, and legal violations. Despite security, backup, and disaster recovery measures, disruptions may not be avoided. These events may damage the Company’s social credibility and adversely affect its financial position and operating results.

② Relationship with majority shareholder

On January 25, 2021, payment was completed for the issuance by the Company of new shares of common stock through a third-party allotment to the Wuthelam Group. As a result, the Wuthelam Group came to hold 58.7% of the Company’s common stock and, as of the filing date of this Annual Securities Report, is the Company’s parent company, with significant influence over matters requiring ordinary or special resolutions at the Company’s General Meeting of Shareholders. There are no agreements between the Company and the Wuthelam Group regarding the Wuthelam Group’s holding or sale of the Company’s shares, the exercise of voting rights, or any other arrangements that would restrict the Company’s management. In addition, Mr. Goh Hup Jin, the representative of Wuthelam, concurrently serves as a Director of the Company and may continue to do so in the future.
The interests of the Wuthelam Group with respect to the Company’s business and management policies may differ from those of the Company and its minority shareholders. In August 2021, as part of a transaction with the Wuthelam Group, the Company transferred its automotive coatings business in Europe to the Wuthelam Group. As a result, the Group and the Wuthelam Group currently maintain an ongoing commercial relationship with respect to this business through a management services agreement and a buyback option, and there can be no assurance that conflicts of interest will not arise in the future.
The Company understands that the Wuthelam Group supports its management policy of seeking to maximize shareholder value while protecting minority shareholders as a listed company, and that the Wuthelam Group intends to continue holding the Company’s shares. However, the Wuthelam Group may increase or decrease its shareholding in the Company in light of its own financial condition and other factors, and any such change could affect the market price of the Company’s shares.