TOSOH CORPORATION

In the Petrochemicals Segment and Chlor-Alkali Segment in particular, the Group is exposed to risks associated with market fluctuations in the prices of raw materials and fuels such as naphtha and coal. Amid continued increases in raw material and fuel prices driven by the deterioration of conditions in the Middle East, if such cost increases cannot be appropriately passed through to product prices, this may have a material impact on business performance and financial condition. Due to the effects of inventory valuation (weighted average method), there is also a structural risk in which, during periods of declining raw material and fuel prices, high-cost beginning inventories push up the cost of sales.

There is a risk that fluctuations in domestic and overseas economic conditions or changes in customer and market trends could lead to a contraction of product markets or a decline in market conditions. Capacity expansion or low-price selling by competitors could result in loss of market share or a decline in product prices due to an imbalance between supply and demand. These factors could affect the Group's business performance and financial condition.

There is a risk that stricter regulations on CO2 and other emissions, the introduction of taxes on fossil fuels, and the emergence of substitute products could reduce demand for petroleum-related products, affecting business operations. The Group has established the "CO2 Reduction and Effective Utilization Promotion Committee" to promote technological improvements, but costs associated with responding to stricter regulations and business restrictions may arise. In addition, damage to production facilities and transportation infrastructure due to extreme weather events such as typhoons and floods is also anticipated.

Since the Group exports a portion of its domestically manufactured products overseas and imports most of its raw materials and fuels from overseas, significant fluctuations in exchange rates affect foreign currency-denominated transactions, assets and liabilities, and the yen-translated amounts of overseas group companies' financial statements. This creates a structure in which yen depreciation leads to higher raw material and fuel procurement costs, while yen appreciation leads to lower export earnings.

Although the Group conducts routine and periodic equipment inspections and maintenance as well as safety-related investments, it cannot completely prevent natural disasters or unforeseen accidents. Losses associated with the shutdown of manufacturing facilities, compensation costs for damage to surrounding areas, and substantial equipment repair costs may arise. There is also a risk that the spread of infectious diseases such as COVID-19 could force the suspension of production and sales activities.

Although the Group has implemented various defensive measures against cyberattacks, if problems occur in plant control systems or core business systems, important operations may be forced to be suspended. If confidential information or personal information is leaked, there is a risk of loss of social trust and competitiveness. The Group is working to ensure appropriate information management, including compliance with the GDPR.

The Group conducts M&A and capital alliances both domestically and overseas for the purpose of business expansion and strengthening competitiveness, but if expected effects are not achieved due to changes in the business environment, impairment of goodwill may be required. Business restructuring, including withdrawal from unprofitable businesses and reorganization of affiliated companies, could also affect business performance and financial condition.

In the Performance Products Segment in particular, the pace of technological innovation is remarkably fast, requiring timely development and provision of new products. If the Group is unable to continuously develop new products that meet customer needs, or if competitors achieve groundbreaking technological innovations, this could reduce competitiveness and affect business performance and financial condition. Although the Group is actively pursuing research and development, the certainty of achieving results is not guaranteed.

If profitability significantly deteriorates for any of the Group's products, or if real estate prices decline, impairment losses on fixed assets may arise, affecting business performance and financial condition. Although the Group applies accounting standards related to impairment, the risk of substantial impairment charges may materialize during periods of deteriorating market conditions.

Since some raw materials and fuels depend on specific regions or suppliers, there is a risk that production and sales volumes could decrease if procurement is disrupted by disasters, accidents, or other events. There are also concerns about disruptions to the procurement of naphtha and other materials due to the deterioration of conditions in the Middle East. The Group is working to ensure stable procurement through diversification of suppliers and the conclusion of medium- to long-term contracts, but such risks cannot be completely eliminated.