Chugoku Marine Paints : 2023 Consolidated Financial Statements

CHUGOKU MARINE PAINTS, LTD.

Consolidated Financial Statements

for the years ended March 31, 2023 and 2022

Independent Auditor's Report

The Board of Directors

CHUGOKU MARINE PAINTS, LTD.

Opinion

We have audited the accompanying consolidated financial statements of CHUGOKU MARINE PAINTS, LTD and its consolidated subsidiaries (the Group), which comprise the Consolidated balance sheet as at March 31, 2023, and the consolidated statements of income, comprehensive income, changes inequity, and cash flows for the year then ended, and notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters.

Determination of whether to recognize impairment losses on non-current assets used by Kobe Paints, Ltd.

Description of Key Audit Matter	Auditor's Response
As of March 31, 2023, the Group recorded	We mainly performed the following audit
property, plant and equipment and intangible	procedures to evaluate the estimate of total
assets of ¥25,120 million in the consolidated	undiscounted future cash flows used in
balance sheet, which includes land of ¥1,782	determining whether to recognize impairment
million and manufacturing facilities of ¥180	losses on the asset group consisting of land and
million being used by Kobe Paints, Ltd.	manufacturing facilities being used by Kobe
("Kobe Paints"), a consolidated subsidiary,	Paints:
which manufactures and sells marine paints.	 We compared the estimation period for future
As described in (Significant Accounting	cash flows with the remaining useful life of the
Estimates) in Notes to Consolidated Financial	major assets to assess whether the estimation
Statements, during the year ended March 31,	period is reasonable.
2023, the Group determined that there is an	 We reviewed the future cash flows to ensure
indication that an asset group consisting of
that they are consistent with the business plan
land and manufacturing facilities being used
approved by the Board of Directors.
by Kobe Paints may be impaired as the
 We compared past business plans with actual
market value of the asset group had declined
by approximately 50% from the carrying	results to assess the effectiveness of the
amount. However, the Group did not	estimation process used by management in
recognize any impairment losses as the total	formulating business plans.
amount of undiscounted future cash flows	 We made inquiries of management of the
arising from operating activities of Kobe	Company and Kobe Paints regarding the
Paints exceeded the carrying amount of the	predictions of sales volume and gross profit
asset group. The estimates of future cash	margin in the business plan and also reviewed
flows are based on a business plan prepared	the reports provided to the Board of Directors.
by Kobe Paints which is approved by the	 We compared the expected sales volumes with
Company's Board of Directors and estimates
available external data on future projections of
for the period beyond that covered by the	marine cargo movement which is relevant to
business plan are determined based on the	Kobe Paints' key products and performed trend
growth rates which are estimated to the extent	analysis based on historical data.
of the long-term average market growth rates.	 To evaluate the gross profit margin forecasts,
As described in (Significant Accounting	we conducted trend analysis based on past
Estimates) in Notes to Consolidated Financial	results.
Statements, the significant assumptions in the	 For growth rates after the period covered by the
estimation of future cash flows are
business plan, we compared the growth rates
predictions of sales volume and gross profit
with available	external	data	on future
margin in the business plan and the growth
projections of	the marine	cargo	movement
rate after the period covered by the business
which is relevant to Kobe Paints' key products
plan.
and performed trend analysis based on
The above assumptions in the estimation of	historical data.
future cash flows require management
judgment and involve uncertainty since

estimates of sales volume in particular are affected by future marine cargo movement and accompanying fluctuations in tonnage. Accordingly, we have determined that the determination of whether to recognize impairment losses on the asset group used by Kobe Paints is a key audit matter.

Other Information

The other information comprises the information included in the disclosure document that contains audited consolidated financial statements but does not include the consolidated financial statements and our auditor's report thereon.

We have concluded that the other information does not exist. Accordingly, we have not performed any work related to the other information.

Responsibilities of Management, the Corporate Auditor and the Board of Corporate Auditors for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern.

The Corporate Auditor and the Board of Corporate Auditors are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

• Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Corporate Auditor and the Board of Corporate Auditors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Corporate Auditor and the Board of Corporate Auditors with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Corporate Auditor and the Board of Corporate Auditors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan

Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.