SUMITOMO CHEMICAL COMPANY, LIMITED

The Group's products are exposed to intense price competition due to the entry of overseas companies into the domestic market, the influx of imported products resulting from tariff reductions, and the rise of generic products. A significant deterioration in the business environment could lead to reduced profitability and declining market prices, potentially resulting in impairment losses on property, plant and equipment or the write-down of deferred tax assets. Although the Group is working to reduce costs, failure to overcome price competition could adversely affect its business results and financial position.

Overseas revenue accounts for approximately 70% of total revenue, with particularly high dependence on Asian markets. Geopolitical issues such as tariff increases due to trade friction or supply chain disruptions caused by regional conflicts could adversely affect business results and financial position. In addition, the investment in and debt guarantee for Petro Rabigh (Equity-Method Affiliate) in Saudi Arabia carries the risk that the recoverable amount could decline significantly due to changes in uncertain economic conditions.

Since product exports exceed raw material imports, a stronger yen would cause the decline in export proceeds to exceed the decline in import payments, resulting in deteriorating earnings. It is estimated that a one-yen appreciation of the yen against the US dollar would reduce core operating profit by approximately ¥2.5 billion per year. Although the Group conducts hedging transactions such as forward exchange contracts, it cannot completely hedge medium- to long-term foreign exchange fluctuation risk.

As new drug development becomes increasingly difficult, in addition to the risk of development delays or discontinuation, drug price containment policies in Japan, the United States, and China (annual drug price revisions, the introduction of selective treatment programs, centralized procurement systems, etc.) could put pressure on earnings. In the United States, new rules and policies related to curbing the prices of originator drugs have been proposed and may be implemented in the future. If these regulatory tightenings occur concurrently, they could have a material adverse effect on the Group's business results and financial position.

Naphtha, the primary raw material for the Essential & Green Materials segment, is significantly affected by security conditions in the Middle East and global economic conditions, and can be subject to sharp price fluctuations. If naphtha prices surge sharply, delays in passing on costs to product prices would result in deteriorating earnings. There is also a risk that key raw materials may not be secured due to dependence on specific regions or suppliers; while the Group addresses this by securing multiple suppliers, complete prevention cannot be guaranteed.

In addressing climate change, the Group is working on both reducing its own GHG emissions (responsibility) and contributing to global GHG reduction through its products and technologies (contribution); failure to respond appropriately could adversely affect business activities. In addition, future tightening of legal regulations concerning the environment and chemical safety could result in new compliance costs. Regarding the plastic waste issue as well, failure to respond appropriately poses a risk of adversely affecting business activities.

With the acceleration of digital innovation, risks related to information systems are increasing further due to the growing sophistication of cyberattacks, which could adversely affect business operations. Although the Group has implemented measures to prevent information leaks and losses, as well as measures to minimize the impact of security incidents when they occur, these risks cannot be completely eliminated. Cybersecurity is positioned as a key management priority and is being addressed accordingly.

In domestic and overseas corporate acquisitions and capital alliances aimed at expanding business and strengthening competitiveness, there is a risk that the anticipated synergy effects may not be realized due to changes in the business environment. If it is determined that expected results cannot be achieved, or if the applicable discount rate rises, impairment losses on goodwill and other assets may occur, which could adversely affect business results and financial position.

Although the Group has established a quality control system compliant with international standards and regulations, there is no guarantee that large-scale product accidents or recalls can be completely prevented, which could result in substantial costs and significant impact on corporate reputation. For agrochemicals, pharmaceuticals, and similar products, new issues or side effects may become apparent through the accumulation of post-marketing knowledge, and the discovery of unexpected problems after launch could adversely affect business results and financial position. The Group strives to prevent such issues through risk assessment during new product development and thorough daily quality control.

Although a Group-wide promotion structure has been established under the guidance and supervision of the Compliance Committee, compliance violations involving domestic and international laws and regulations could result in a decline in social credibility and the imposition of damages, fines, or other penalties. In addition, if significant lawsuits or disputes are brought in connection with domestic or overseas business, this could have a material adverse effect on business results and financial position. Increased costs to respond to regulatory changes are also anticipated, including risks related to human rights issues and harassment.