TAYCA CORPORATION

The Group, whose main markets are Japan, Asia, Europe and the United States, faces the risk of declining product demand due to reduced distribution volumes of products and materials and lower capital expenditure resulting from economic slowdowns in each region. The Group addresses this by concentrating management resources on capital expenditure and R&D for growth businesses, developing new markets and customers, and reducing manufacturing costs, but the impact of the external economic environment cannot be completely eliminated.

As the Group exports products to Asia, Europe and the United States and imports raw materials, and operates overseas production bases in Thailand, Vietnam and the United States, sudden exchange rate fluctuations directly affect its financial position and operating results. While the Group seeks to minimize risk through forward exchange contracts and other measures, medium- to long-term fluctuations cannot be fully hedged, and translation differences arising from converting overseas subsidiaries' financial statements into yen also affect business performance.

There is a risk that rising costs of petroleum-derived raw materials due to sharp increases in crude oil prices, and price surges and rising ocean freight rates caused by fluctuations in the international supply-demand balance for titanium dioxide ore, a key raw material, could pressure profitability through delays in passing on costs to product prices. The Group addresses this through the use of derivatives such as commodity swaps, strengthening cooperation with suppliers, expanding purchasing sources, entering into long-term contracts, and securing appropriate inventory levels.

If an industrial accident such as a fire or explosion occurs due to manufacturing equipment, physical and human damage to areas surrounding the plant may occur, potentially having a material impact on business continuity. Regarding natural disasters such as earthquakes, heavy rain and floods, the Group has taken measures including developing disaster response manuals and BCPs, establishing safety confirmation systems, implementing seismic countermeasures, and conducting disaster drills, but damage cannot be completely eliminated.

While operating production bases in Thailand, Vietnam and the United States, if geopolitical risks such as unexpected changes in laws and regulations, trade friction, conflicts or political turmoil materialize, this could affect the continuity of overseas operations and the Group's financial position and operating results. Exposure to these risks is increasing as overseas business expands.

The Group monitors and strives to comply with trends in amendments to laws and regulations related to chemical substance management in Japan, Europe, the United States, Asia, Thailand, Vietnam and the United States, but if regulations are tightened or their scope expanded beyond expectations, new countermeasure costs and additional capital expenditure may be required, potentially affecting the Group's financial position and operating results. The Group addresses this by working to reduce environmental impact and improve energy efficiency across the entire product lifecycle.

If a third party infringes the Group's intellectual property, or if the Group's products or technologies are alleged to infringe the intellectual property rights of others, litigation risk and business restrictions may arise, potentially affecting the Group's financial position and operating results. The Group takes measures to prepare for such contingencies through cooperation with experts such as lawyers and patent attorneys and by establishing internal management rules regarding intellectual property.

If a long-term failure of information systems occurs due to unknown computer viruses or unauthorized access, or if confidential information is leaked or destroyed, this could result in damage such as suspension of business operations or loss of credibility. The Group continuously implements measures including the introduction of defense systems, regular maintenance and inspections, backup systems, and the development of related regulations, but it is difficult to completely eliminate unforeseeable levels of threat.

If intangible and tangible fixed assets, including goodwill acquired through corporate acquisitions, fail to generate the expected cash flows, declining profitability may make it impossible to recover the invested amount, potentially resulting in an impairment loss. The recognition of impairment directly affects the Group's financial position and operating results.

While the Group promotes measures to address climate change, such as switching fuels to low-carbon energy, streamlining production processes, and shifting to environmentally friendly products, stricter regulations or the materialization of physical climate change risks could result in additional costs and impacts on business. The Group promotes company-wide risk identification, assessment and response centered on its Sustainability Committee, and aims to reduce CO2 emissions toward achieving carbon neutrality.