SAKAI CHEMICAL INDUSTRY CO., LTD.

If prices surge or supply becomes tight or delayed for raw materials and fuels such as heavy oil and non-ferrous metals, imported raw materials from regions with high country risk, or specialty raw materials and supplies with limited domestic sourcing options, this may affect business performance and financial condition. As a countermeasure, the Group strives to secure multiple countries and multiple suppliers for imported raw materials, and maintains inventory operations with sufficient margin taking into account procurement difficulty and required lead times.

Difficulty in raising funds from financial institutions due to a financial crisis, or increased interest payments due to rising interest rates, may affect business continuity. As countermeasures, the Group has established a commitment line through syndication with its financial institutions, adopts fixed interest rates for long-term borrowings, and improves fund efficiency within the Group through a cash management system.

Violations of the wide range of laws and regulations in Japan and overseas (investment licensing, import/export regulations, labor, patent, tax, foreign exchange-related laws, etc.) or actions contrary to social expectations may result in legal punishment, litigation, social sanctions, or loss of customer trust, which may affect business performance and financial condition. As countermeasures, the Group provides employee education through compliance training and handbook distribution, and takes early action in cooperation with experts such as certified public accountants, lawyers, and patent attorneys.

Because the Group is primarily engaged in the chemical materials business involving large-scale consumption of resources and energy, its environmental burden is significant. If large-scale capital investment becomes necessary due to the future introduction of environmental taxes or tightening of environmental regulations, this may affect business performance and financial condition. Currently, dedicated equipment for wastewater regulation compliance has been installed at all manufacturing sites, and the Group monitors the concentration of emissions such as nitrogen oxides and phosphorus, while working to reduce environmental burden by improving production efficiency.

The yen-denominated value of assets arising from foreign currency-denominated transactions associated with overseas business operations may be affected by unexpectedly large exchange rate fluctuations, which may affect business performance and financial condition. As a countermeasure, the Group implements forward foreign exchange contracts based on its risk management policy to reduce foreign exchange fluctuation risk associated with import and export transactions.

Since most strategic shareholdings are securities with market prices, a significant decline in stock market prices may result in impairment losses, which may affect business performance and financial condition. As a countermeasure, based on the Corporate Governance Basic Policy, the Group examines the purpose of holding, holding risk, market value, and dividend yield for each stock to confirm the rationale for continued holding, while proceeding to sell shares deemed unnecessary in order to reduce strategic shareholdings.

In business activities across a wide range of countries and regions, if troubles materialize due to changes in laws and regulations particularly in emerging countries, political, economic, or social turmoil caused by terrorism or war, or differences in culture and customs, this may result in adverse effects such as restrictions on business activities or temporary suspension of operations. As countermeasures, in addition to selectively expanding into countries with relatively low country risk, the Group seeks to reduce risk in Indonesia through a joint venture with a partner familiar with local conditions.

If quality issues arise in products used across a wide range of fields such as automotive-related components, electronic devices, building materials, cosmetics, and pharmaceuticals, and particularly if fraud or deviations occur in GQP/GMP for pharmaceuticals, this may result in sales suspension, product recalls, and loss of social trust, which may affect business performance and financial condition. As countermeasures, the Group implements quality control across the entire supply chain, shares information through quality liaison meetings, and maintains product liability insurance.

Disasters such as earthquakes, typhoons, tsunamis, fires, and hazardous substance leaks may cause business site closures or suspension of business activities, and for products that cannot be produced elsewhere, temporary or long-term production disruption may affect business performance and financial condition. As countermeasures, the Group has established business continuity management system regulations, developed a safety confirmation system, and conducts regular disaster prevention inspections and equipment maintenance across all facilities; however, it states that the effects of unforeseen large-scale disasters cannot be completely prevented or mitigated.

If a system failure caused by unknown computer virus intrusion, unauthorized access, or a sudden accident becomes prolonged, or if confidential information is leaked due to an unforeseen event, this may affect business performance and financial condition, as well as give rise to liability for damages to affected companies and individuals and loss of social trust. As countermeasures, the Group has introduced defense systems such as EDR with regular maintenance and inspection, operates based on information management regulations, and provides information management training to all employees.