Toho Acetylene Co., Ltd.

The domestic industrial gas market is saturated amid growing oligopolistic control by major players, and the Group, whose main customers are in the steel, shipbuilding, semiconductor, and automotive industries, faces intensifying competition for market share. Changes in demand trends could significantly affect sales volumes of industrial gases. As countermeasures, the Group is working to maintain its competitive foundation through community-based sales activities via sales subsidiaries and the provision of high-quality technical services.

The Group sells Liquefied Petroleum Gas (LPG) for industrial and household use mainly in the Tohoku region, but household (residential) demand is on a declining trend due to population decrease. This structural contraction in demand may affect the Group's sales over the medium to long term. The Group is working to respond flexibly to changes in the business environment by optimizing its sales strategy.

Electricity costs account for a large proportion of the manufacturing costs of Industrial Gases (Oxygen, Nitrogen, Argon), Hydrogen Gas, etc., and if electricity costs rise significantly due to soaring crude oil prices or other factors and cannot be appropriately passed on to selling prices, profitability may deteriorate. For Liquefied Petroleum Gas (LPG) as well, if fluctuations in import prices cannot be promptly passed on to selling prices, this may impact profitability. As countermeasures, the Group is working to automate production facilities, update them to energy-saving equipment, and strengthen production management based on demand forecasting.

Sales volume of Liquefied Petroleum Gas (LPG) is affected by air and water temperatures, tending to decrease in summer and increase in winter, resulting in a sales and profit structure skewed toward the second half of the fiscal year. In fiscal years with climate variability such as warmer winters, sales volumes may be significantly affected; in the fiscal year under review, quarterly sales volumes showed pronounced seasonal disparity, with 14,251t in Q1, 11,716t in Q2, 16,254t in Q3, and 20,024t in Q4. The Group recognizes that forecasting climate variability caused by recent global warming is difficult.

The Group sells medical gases and medical equipment to medical institutions, with selling prices largely determined through competitive bidding. Depending on the content of drug price revisions, selling prices and profitability may be affected, and there is also a risk of losing existing customer transactions due to competitive bidding. As countermeasures, the Group monitors information released by the Ministry of Health, Labour and Welfare and works to retain existing customers and acquire new customers by providing services that reduce the maintenance costs of supply equipment.

Some of the high-pressure gases manufactured and sold by the Group are flammable or toxic, and if an accident such as a leak, ignition, or explosion occurs, it could result in damage to employees and equipment or a suspension of operations. If a product defect causes damage to a customer, there is also a risk of being subject to claims for damages under the Product Liability Act. As countermeasures, the Group works to prevent accidents through risk avoidance via quality assurance audits and thorough safety education.

The Group operates mainly in the Tohoku, Hokkaido, and Kanto regions, and has experienced severe damage and substantial recovery costs and operational suspension losses from the tsunami caused by the Great East Japan Earthquake. If a large earthquake, storm, flood, or other natural disaster occurs, the production capacity of manufacturing sites could be significantly reduced, potentially affecting business performance and financial condition. As countermeasures, the Group prioritizes ensuring employee safety above all else, maintains insurance coverage, preserves important data externally, and is building a stable supply system through cooperation with jointly operated companies in other regions.

If an intentional or negligent violation of laws or regulations occurs, administrative sanctions from regulatory authorities, lawsuits from stakeholders, or a decline in social trust could affect business performance. As countermeasures, the Group has established a Compliance Committee, sets annual activity targets, thoroughly implements education on proper working hours and harassment prevention, and maintains an internal whistleblower reporting system.

Business activities are regulated by various laws and regulations, including the High Pressure Gas Safety Act, and changes in legal rules or administrative guidance could affect business performance. There are also concerns about increased compliance costs due to tightening greenhouse gas regulations both domestically and internationally. The Group monitors trends in relevant legal amendments to identify changes early and build appropriate systems, but recognizes that risks arising from such external factors are beyond the Group's control.

If a system failure or leakage of customer information occurs due to a cyberattack, unauthorized access, computer virus infection, or similar cause, it could lead to a decline in social trust or lawsuits from stakeholders, affecting business performance. The Group has established personal information protection regulations based on the Act on the Protection of Personal Information, implements appropriate security measures, and also addresses this risk by outsourcing to highly reliable external contractors.