DAIICHI KIGENSO KAGAKU KOGYO CO.,LTD.

In establishing production systems at the local subsidiary in Vietnam aimed at stable procurement of zirconium compounds, deficiencies in equipment maintenance or lack of skills among local employees could lead to reduced production efficiency, incurrence of additional costs, and supply disruptions. Although progress has been made in establishing manufacturing conditions and reducing variable costs, continuous equipment maintenance and human resource development are essential for the long-term establishment of stable operations. The Group is working to reduce this risk through strengthened equipment maintenance, operational monitoring, and development of local personnel.

In the strategic fields of Semiconductors & Electronics, Energy, and Healthcare, net sales increased year on year during the current fiscal year, but progress varied by field, and there has been no major change in the composition of sales. If application development, mass-production project launches, and expansion of the customer base do not proceed as planned, the transformation of the business portfolio could be delayed, potentially affecting business results. The Group is promoting expansion in strategic fields through strengthened collaboration among development, manufacturing, and sales functions and by leveraging its new business creation function.

The Group holds foreign currency-denominated assets and liabilities as well as intra-group loans, and in addition to fluctuations in the yen-dollar exchange rate, fluctuations between the dollar and the Vietnamese dong could result in foreign exchange losses at both the parent company and the Vietnamese subsidiary. Because outstanding borrowings related to the Vietnam business are at a substantial level, a rise in interest rates could increase financial expenses and put pressure on ordinary income. Although measures such as forward exchange contracts are being implemented, it is difficult to avoid all risk, and reducing reliance on borrowings is recognized as an important countermeasure.

Against the backdrop of expanding use of AI and cloud services, the number and sophistication of cyberattack methods are increasing, raising the possibility of leakage, tampering, or loss of technical information, business information, and personal information, or system outages. If such damage were to expand, it could significantly affect business results through disruption of business activities including production, order processing, and logistics, recovery costs, liability for damages, or a decline in social credibility. The Group strives to protect its information assets through strengthened technical measures, development of internal regulations, employee training, and establishment of incident response systems.

If greenhouse gas emission regulations, emissions trading schemes, and the introduction or strengthening of carbon pricing progress in various countries and regions, this could increase energy procurement costs and necessitate additional responses such as energy-saving investments and procurement of renewable energy. Failure to adequately respond to customers' decarbonization requirements could also result in a decline in competitiveness. The Group strives to reduce this risk through advancing emissions measurement and reduction roadmaps, energy-saving activities, use of renewable energy, and enhanced gathering of information on environmental regulations in various countries.

Yttrium and heavy/medium rare earth elements are produced predominantly in China, and the continuing impact of export restrictions could disrupt the stable supply of products that use these materials. If it becomes difficult to secure the necessary quantities, supply constraints on the relevant products or a decrease in sales volume could occur, potentially having a material impact on business results. The Group strives to secure a stable supply of key raw materials through diversifying procurement sources, appropriately managing inventory levels, and strengthening the gathering of information on supply trends.

In addition to manufacturing sites in Japan and Vietnam, the Group operates sales sites in China, Thailand, the United States, and elsewhere, and geopolitical factors such as political instability, trade friction, prolonged U.S.-China tensions, and tightening of import/export regulations could disrupt raw material procurement, production, logistics, and sales. In particular, raw material procurement and stable operation of the Vietnam business are important management issues, and if impacts on these become apparent, they could have a material effect on business results through supply constraints, increased procurement costs, and lost sales opportunities. The Group is working to reduce this risk through reviewing its supply chain, improving its ability to respond to regulations, and rebuilding its procurement and sales systems.

If natural disasters such as earthquakes, typhoons, floods, or power outages, or accidents such as fires or equipment failures occur at manufacturing sites in Japan and Vietnam, this could disrupt the receiving of raw materials, production, logistics, and product supply. If a manufacturing site or logistics function suffers significant damage, this could affect business results through operational stoppage, supply delays, and the incurrence of recovery costs. The Group strives to reduce this risk through site diversification, insurance coverage, formulation of business continuity plans (BCP), strengthening supply continuity systems through inventory allocation, equipment maintenance, and promotion of health and safety activities.