NIPPON SANSOHOLDINGS CORPORATION

The Group operates in four regions: Japan, the United States, Europe, and Asia & Oceania, and factors such as market trends, politics, economics, geopolitics, conflicts, and large-scale disasters in each country may affect business activities, operating results, and financial condition. In particular, heightened geopolitical risk and increased uncertainty in the economic environment have been selected as key risks for FY2025. The Group is strengthening communication and information sharing with regional holding companies and building a rapid decision-making framework.

There is a risk that declines in operating rates or consolidation/relocation of production sites among major customers in industries such as steel, chemicals, oil refining, semiconductors, and automobiles could lead to reduced utilization of manufacturing equipment or render all or part of such equipment unnecessary. Even in ongoing construction projects, changes in customers' business environment may make it difficult to continue projects, and if such losses cannot be covered by contractual compensation, equipment retirement losses or impairment losses may occur, affecting operating results. The structure of dependence on major customers under the On-Site Plant model is a factor that amplifies this risk.

Electricity costs account for a large proportion of the manufacturing costs of the Group's core products, Oxygen, Nitrogen, and Argon, and are affected by significant fluctuations in crude oil and LNG prices. Labor costs, transportation costs, and other expenses have also risen, and manufacturing costs remain elevated. Although the Group is passing on these costs to sales prices, if such pass-through is insufficient, it may affect operating results and financial condition. The rigidity of the cost structure heightens the risk of profit pressure.

Specialty semiconductor material gases and Helium gas (most of which is produced in North America and the Middle East) require a global supply chain, and there is a risk that fluctuations in production conditions or heightened geopolitical risk could make them subject to import/export restrictions. Changes in maritime shipping conditions amid rising international tensions may disrupt stable supply to customers, and this could, through effects on customers' business activities, spill over into the Group's operating results. Geopolitical risk has been explicitly selected as a key risk theme for FY2025.

Cyberattacks exploiting the rapid development of AI technology are becoming increasingly sophisticated and advanced, raising the risk that OT areas such as manufacturing equipment and control systems will also become attack targets. If damage occurs, it could seriously disrupt business activities, including operational shutdowns and supply impacts, and the status of responses to this was reported and discussed as a key risk for FY2025. The Group is promoting risk assessment and strengthened security measures across the entire Group, the rollout of information security policies, and enhanced employee education and training.

Amid growing demands for responses to global warming and disclosure of climate change risks, the Group is advancing information disclosure based on TCFD recommendations, and key risks identified through warming scenario analysis may affect business activities and operating results. There is also a risk of increased response costs due to the strengthening of environmental regulations, and the Group is quantitatively estimating the financial impact. Response to carbon neutrality has been selected as one of the key risk themes for FY2025.

In its global operations across four regions, the Group faces risks of unexpected changes in laws and regulations or administrative guidance in each country, as well as investigation risk by regulatory authorities under anti-corruption laws, competition laws, environmental protection laws, export regulations, and the like. Adverse decisions such as fines, business suspension orders, or revocation of permits/licenses may materially affect operating results, financial condition, and credibility. There is also a risk that changes in the international situation could lead to stricter export regulations or higher tariffs, reducing product exports to specific countries or companies. There is also a risk that if a supplier of imported products becomes subject to sanctions, continued importation of such products may become impossible.

Business operations across the four global regions require the stable acquisition of personnel with advanced expertise in production, engineering, marketing, IT, and other fields, as well as personnel with a global perspective; failure to secure such personnel may hinder the achievement of targets. Talent acquisition, succession planning, and human rights/DEI have been selected as key risk themes for FY2025. The Group is promoting the cultivation of a workplace environment that embraces diverse talent, measures to improve employee engagement, and the development of global talent across the entire Group.

Foreign currency-denominated transactions exist in overseas procurement and export transactions related to Specialty Gases, Helium, and equipment, and if the Group cannot cope with sharp exchange rate fluctuations, this may affect operating results. In addition, most of the funding raised for the acquisition of the European business in FY2019 (ended March 2019) was through floating-rate loans or hybrid financing, and future interest rate fluctuations may affect operating results and financial condition. The Group implements risk hedging through forward exchange contracts and similar means, but there are limits to its ability to cope with sudden fluctuations.

The Group records goodwill and intangible assets on its consolidated statement of financial position in connection with corporate acquisitions, and if a significant economic downturn causes a substantial decline in the growth rate of the acquired business, or if a rise in market interest rates causes a substantial increase in the discount rate, the recoverable amount could decline significantly, resulting in impairment losses. The Group conducts impairment testing every period, but the financial impact could become substantial in a deteriorating macroeconomic environment. In addition, Mitsubishi Chemical Group Corporation holds 50.59% of the Company's issued shares, and any change in the capital relationship with that company could have a material effect on business operations, operating results, and financial condition.