SHIKOKU KASEI HOLDINGS CORPORATION

Demand for chemicals and building materials is affected by economic conditions in Japan and overseas, and a contraction in demand due to an economic downturn could adversely affect business performance. In addition to uncertainty stemming from inflation, monetary tightening, and administration changes centered on the United States, surges in raw material and logistics costs due to the situations in Ukraine/Russia and Israel/Palestine may also affect the financial position. The Group's policy is to formulate alternative business plans flexibly in response to such conditions.

Given the business structure involving overseas sales and overseas procurement, yen appreciation adversely affects exports, while appreciation of procurement currencies pushes up manufacturing and procurement costs, reducing profit margins and price competitiveness. Yen appreciation against the US dollar and euro in particular is a major concern. Although the impact of short-term fluctuations is minimized through hedging via forward exchange contracts and similar measures, medium- to long-term exchange rate fluctuations may not be fully addressed.

A significant portion of the Group's revenue depends on sales based on proprietary product and technology development, and the continued creation of innovative new products is key to future growth. However, investing management resources in development does not guarantee success; in the Chemicals Business, obtaining customer quality approval requires long-term R&D investment, while in Building Materials, product life cycles risk shortening due to changes in consumer preferences. Failure in new product development could lead to a decline in future profitability and adversely affect business performance and financial condition.

In the Chemicals Business, price competition is intensifying as low-cost overseas products improve in quality and distribution within the domestic market, risking a relative decline in the competitiveness of the Company's products. In the Exterior Products segment of the Building Materials Business, competition may intensify as major aluminum sash competitors introduce low-priced products backed by substantial development and logistics investment. The Group continues to differentiate itself through high value-added, functionality, design, and proposal capabilities, but if drawn into price competition, business performance and financial condition could be adversely affected.

Many of the Company's chemical products serve as intermediate raw materials for customers' products and may be replaced by the emergence of new technologies in customers' industries. In the Building Materials Business, new housing starts and public/private investment amounts serve as leading indicators, so changes in policy and economic trends directly affect demand. Such environmental changes may adversely affect the Group's business performance and financial condition.

Although multiple sourcing is the principle, certain specialty raw materials are procured from a limited number of suppliers, and procurement could become difficult due to accidents or other issues at suppliers. In addition, if surges in raw material and energy prices cannot be passed on to selling prices, or if such pass-through is delayed, product profitability could deteriorate, adversely affecting business performance and financial condition.

The Group's proprietary technologies and know-how do not have established intellectual property rights in all overseas countries, and it may not be possible to effectively prevent third parties from manufacturing similar products. Additionally, the Group may be unable to prevent other companies from developing similar or superior technologies, or from imitating or analyzing patents and trade secrets. There is also a risk that future products or technologies could be deemed to infringe on the intellectual property rights of other companies.

For seasonal-demand products such as pool disinfectants and for building materials products manufactured to forecast for timely delivery, a sharp change in market conditions causing sales trends to significantly diverge from demand forecasts could increase inventory assets and adversely affect cash flow. Building materials products may also become obsolete in design or function due to changes in trends and preferences, resulting in stagnant inventory that adversely affects cash flow and earnings.

In pursuing M&A, capital alliances, and business alliances toward achieving the long-term vision "Challenge 1000," business integration may not proceed as planned, and synergy effects may not be fully realized. If the performance of an acquired company falls below initial expectations due to changes in market conditions or other factors, impairment losses on goodwill and intangible assets, valuation losses on shares, the materialization of contingent liabilities, and additional costs may arise, adversely affecting business performance and financial condition.

The Group holds important information such as R&D information, manufacturing technology information, customer information, and employee information, and while measures such as establishing internal regulations and access controls have been implemented, information leaks, data tampering, or information system outages could occur due to cyberattacks, unauthorized access, internal misconduct, or human error. If manufacturing facilities or business systems are halted, disruptions to production activities and order-receiving/shipping operations may occur, adversely affecting business performance and financial condition through loss of credibility, liability for damages, and increased recovery costs.