Nissan Chemical Corporatiom

The Chemicals Business, Functional Materials Business, Agricultural Chemicals Business, and Healthcare Business divisions face a wide range of market risks, including fluctuations in raw material and fuel prices, changes in Chinese market conditions, accelerating shift to OLED, intensifying competition in semiconductor materials, and share erosion from generic pharmaceuticals. In particular, the Functional Materials Business faces the risk of failing to achieve adoption or losing share for OLED-related materials and EUV materials, while the Healthcare Business requires substantial R&D expenditure and a long time horizon for in-house drug discovery, meaning that depending on outcomes, there is a possibility of impact on operating results and financial condition over the medium to long term. Each business division is working to expand its product portfolio and develop next-generation materials, but the risk remains high if the company cannot respond to rapid changes in the technological and market environment.

In addition to the five core technologies of "precision organic synthesis," "functional polymer design," "fine particle control," "biological evaluation," and "light control," the company is cultivating "microorganism control" and "information science," and is actively promoting new product development in fields such as information and communications and life sciences. However, this requires advanced technology, substantial funding, and a long time horizon. The company invests 7-9% of annual net sales in R&D expenses and assigns approximately 40% of its general career-track employees to research, but the success or failure of development is affected by rapid changes in the market environment and technology trends, which could impact operating results and financial condition. A delayed response to external technological innovation carries the risk of loss of competitive advantage.

Some raw materials, such as compounds synthesized using advanced technology, have limited sources of supply, and some raw materials are dependent on imports from overseas, including China. If supply is disrupted due to the occurrence of international conflicts or sudden tightening of laws and regulations in the countries where suppliers are located, this could hinder the stable manufacturing and sales system for products, potentially impacting operating results and financial condition. The company manages suppliers through the use of sustainability survey forms and on-site audits, but the risk of concentration of supply sources has not been completely eliminated.

The company is subject to regulation under domestic and overseas laws and regulations concerning the handling of chemical substances, and regulations tend to become increasingly stringent due to growing global awareness of environmental issues and effects on living organisms. If existing regulations are revised or tightened, this could result in restrictions on business activities, incurrence of response costs, suspension of sales in target countries, and other consequences, potentially impacting operating results and financial condition. The company has established compliance rules, set up an internal whistleblowing system, and conducts various training programs, but if violations of laws and regulations or actions contrary to societal expectations occur, there is a risk of legal punishment, litigation, or social sanctions.

Given the nature of the business, which involves the manufacturing, logistics, and storage of chemical products, if accidents occur at plants or during transportation, or if production facilities are damaged by large-scale earthquakes, typhoons, or other natural disasters, this could result in plant shutdowns and disruption of supply to customers, adversely affecting the company's credibility, operating results, and financial condition. The company conducts risk assessments through Responsible Care activities and the RC management system, and has formulated a BCP, but it is difficult to be fully prepared for unforeseen large-scale disasters. In recent years, there have been actual instances of plant trouble due to aging facilities, resulting in operational shutdowns for a certain period and losses.

If unexpected trouble occurs during the manufacturing, transportation, or storage process, affecting product quality, this could result in personal or property damage to customers or product users, potentially leading to claims for damages. The company has obtained and maintains certification for its quality management system, established a quality assurance department independent from the manufacturing department, and formulated and operates guidelines for preventing quality control fraud, but if a quality problem occurs, there is a risk of adverse impact on the business not only through operating results and financial condition, but also through loss of social credibility.

Recognizing that research results and intellectual property form the foundation of its business, the company files for and obtains patents in Japan and overseas, and is strengthening its global rights protection and infringement monitoring system. However, if intellectual property disputes arise with other companies, or if intellectual property rights are infringed by other companies, depending on the outcome of settlement negotiations or litigation, the company could be forced to pay damages or revise its sales plans. The company also enforces its rights through litigation, but prolonged disputes or unfavorable rulings carry the risk of impacting operating results and financial condition.

In addition to holding confidential information related to R&D and manufacturing as well as customers' personal information, the company has introduced digital technologies such as IoT and AI into its plants, creating a risk that external cyberattacks, unauthorized access, or computer virus infections could cause failures in control systems and core systems, or lead to leaks of confidential information and personal information. The company implements both hardware and software security measures through information management rules, various guidelines, and regular training, but if it is unable to fully respond to increasingly sophisticated attack methods, this could impact its credibility, operating results, and financial condition.

Securing and developing diverse and talented personnel is essential for strengthening R&D capabilities and improving product quality, and the company is working to establish various human resource development systems and promote work-life balance. However, if the company is unable to secure the necessary personnel due to a deterioration in employment conditions or other factors, this could impact operating results and financial condition. Given that approximately 40% of general career-track employees are assigned to research, a shortage of R&D personnel poses a risk directly linked to the company's competitiveness.

The company has established production and sales sites around the world, primarily in Asia, Europe, and North America, and if changes in the political, economic, or social conditions of the countries in which it operates, or violations of laws and regulations due to deficiencies in the internal control system occur, this could result in the payment of fines, penalties, or damages, or a loss of social credibility, adversely affecting the business. In addition, if efforts to reduce greenhouse gas emissions and conserve biodiversity are insufficient, there is a risk of reputational decline among investors and other stakeholders. The company is addressing these issues through its endorsement of the TCFD recommendations, the introduction of internal carbon pricing, and Responsible Care activities, but responding to tightening regulations and growing societal demands remains a challenge.