Nankai Chemical industry Co., Ltd.

Fluctuations in domestic and overseas economic conditions may cause shrinkage of product markets or market price declines. In addition, there is a risk that capacity expansion or low-price sales by competitors could lead to a decline in market share or product prices. The Group monitors market trends closely and takes measures to minimize the impact on its business results and financial position.

If raw materials used in product manufacturing cannot be secured, or if raw material prices fluctuate sharply, this may have a material impact on the Group's business results and financial position. As countermeasures, the Group strives for stable procurement through diversification of supply sources, and implements cost reductions or sales price revisions when prices rise.

Although the Group has established a quality control system, unexpected quality issues could damage customer trust and social credibility. While the Group has taken out product liability insurance to minimize the financial impact, the payment of damages or compensation may affect its business results and financial position.

As a business operator that manufactures and handles chemical substances, there is a risk that trends in environmental, safety, and health-related regulations could constrain business activities. Although the Group promotes Responsible Care activities to address this, tightening regulations could increase costs and expand business constraints, which may affect its business results and financial position.

In addition to the risk of production interruption due to equipment malfunction or accidents, the Group's major manufacturing sites are concentrated in Wakayama Prefecture and Kochi Prefecture, creating a geographical risk of being susceptible to the Nankai Trough earthquake and wind and flood damage from typhoons. Although the BCP Working Group examines countermeasures to minimize the impact, production interruptions due to equipment damage may affect the Group's business results and financial position.

Although the Group strategically implements capital expenditures based on demand forecasts and profitability, there is a risk that the actual investment amount could significantly exceed the planned amount due to rising construction and logistics costs caused by labor shortages. In addition, if the expected returns are not achieved as planned due to changes in product and raw fuel market conditions, this may affect the Group's business results and financial position.

Products such as salt products for anti-freezing agents for road surfaces and agricultural chemicals experience concentrated sales and profits from winter to early spring (around November to May of the following year), resulting in seasonal fluctuations with reduced earnings in the second quarter. Furthermore, demand is easily affected by weather fluctuations such as snowfall amounts, and depending on weather conditions, this may affect the Group's business results and financial position.

The Group centrally manages operational information such as sales, production, and finance through computer systems, creating risks of business disruption due to unexpected system outages or cyberattacks, and loss of credibility due to leakage or loss of important information. Although the Group conducts compliance training including information security to strengthen its management system, the occurrence of an incident may affect its business results and financial position.

The Group positions human resource strategy as one of its most important issues, recognizing that securing and developing appropriate personnel is essential for future business development. Although the Group actively works on recruiting and developing diverse talent and reducing labor requirements in production processes, if the Group is unable to sufficiently secure personnel, this may result in constraints on business execution, lost opportunities, and decreased sales, which may affect its business results and financial position.

The Group relies on bank borrowings for capital expenditure and working capital funds, and an increase in borrowings is expected going forward as business expands. Although the Group strives to strengthen its financial structure by reducing its borrowing ratio, if interest rates continue to trend upward, an increase in interest expense may affect the Group's business results and financial position.