STELLA CHEMIFA CORPORATION

The proportion of semiconductor-related sales within the High-Purity Chemicals business is high as a share of total net sales, and business performance is significantly affected by cyclical fluctuations in the semiconductor industry's market conditions. A decline in demand from the electronics, electrical equipment, and telecommunications equipment industries, a downturn in capital investment, and falling sales prices due to intensified price competition with competitors may affect the financial position and business results. The Company strives to avoid such impacts through continuous strengthening of product competitiveness and expansion of product development and sales in other business fields.

Some raw materials depend on supply sources in specific regions, and supply tightness or disruption could lead to delays or suspension of production activities, potentially causing disruptions in product supply. In addition, sharp increases in raw material prices could lead to higher cost of sales, which may affect the financial position and business results. The Company works to mitigate procurement risk by purchasing from multiple regions and suppliers, continuously developing new supply sources, and promptly passing on cost increases to sales prices, among other measures.

Sudden natural disasters or unforeseen accidents could damage manufacturing facilities, make raw material procurement difficult, and cause dysfunction in social infrastructure such as electricity and logistics, potentially leading to restrictions or interruptions in production activities. A decline in demand due to the spread of new infectious diseases causing employee infections or the suspension of business operations by customers and business partners may also affect the financial position and business results. The Company has formulated business continuity plans and taken loss mitigation measures through insurance coverage, while conducting routine equipment maintenance inspections and safety and disaster prevention drills.

In the event of a suspension or disruption of information systems due to increasingly sophisticated cyberattacks or natural disasters, there is a risk of leakage of personal information of customers and business partners, or confidential information related to research and development and production. If an information security incident occurs, it may affect the financial position and business results through loss of social trust, litigation, or social sanctions. The Company is continuously working to build and strengthen its information security systems.

Some raw materials are procured from overseas in foreign currencies, and sharp fluctuations in the yen exchange rate may affect procurement costs. Since the business results of overseas subsidiaries are translated into yen when preparing consolidated financial statements, there is also a risk that recorded amounts will fluctuate depending on the exchange rate used at the time of translation. Although hedging measures are taken through forward exchange contracts and other means, it may not be possible to fully respond to sharp fluctuations.

The Company is subject to a wide range of laws and regulations, including those related to security trade control, quality, environment, chemical substances, accounting standards, tax law, labor affairs, and transactions, and changes to existing regulations or the addition of new regulations may restrict conventional business activities. Responding to regulatory changes may require new investments, increasing costs, and could also lead to a decrease in net sales. The Company has established a legal compliance framework and promotes corporate conduct in line with social conscience.

The Company operates fluoride manufacturing businesses primarily in Singapore and China, and is exposed to risks such as unforeseen changes in laws, regulations, and tax systems, adverse political factors, social unrest caused by terrorism or war, difficulty in securing human resources, deteriorating labor relations, natural disasters, and the spread of infectious diseases. If these risks materialize, they may affect the financial position and business results. The Company strives to avoid such risks by gathering information through local subsidiaries and trading companies.

As products utilizing advanced and complex technologies increase, quality assurance control of externally procured raw materials is becoming more complex, creating a risk of product defects or serious accidents. If an unforeseen serious accident or major quality defect occurs, it could result in a loss of social trust, and losses such as compensation payments may not be fully covered by insurance. The Company addresses this risk through thorough quality standard compliance checks at each stage of production and shipment, and by maintaining product liability insurance.

The recruitment and retention of diverse human resources is essential for the continuous provision of products and services and for enhancing corporate value; however, if recruitment or technical skill transfer does not proceed smoothly, it may hinder business operations. If experienced personnel or those with know-how in plant operation and other areas leave the Company, it may affect the financial position and business results. The Company continues its efforts to recruit and retain diverse human resources.

The full-scale introduction of greenhouse gas emissions trading and the application of carbon taxes may lead to direct cost increases, and further cost increases are also expected due to rising prices of raw fuels and electricity and the expanded use of renewable energy and biomass raw materials. Delays in responding to climate change could also lead to a loss of stakeholder trust, potentially resulting in a decrease in net sales. The Company focuses on energy conservation and resource conservation measures, using Scope 1 and Scope 2 greenhouse gas emissions as key indicators.