Hodogaya Chemical Co., Ltd.

Demand for Functional Dyes, Functional Resins, Basic Chemicals, agrochemicals, etc. is affected by economic conditions in Japan, Europe, the U.S., and Asia, with disruptions to the real economy arising from uncertainty in the Middle East situation also serving as an influencing factor. In particular, the Group has multiple local subsidiaries in South Korea, and instability in the political and economic situation on the Korean Peninsula could directly affect operating results. Geopolitical risks associated with global business operations exist in multiple dimensions, including the risk of occurrence of conflicts, terrorism, currency crises, infectious diseases, and the like.

The overseas ratio of net sales in the consolidated fiscal year under review reached approximately 50%, and business activities in overseas markets including Europe, the U.S., and Asia are directly affected by exchange rate fluctuations. Both yen appreciation and yen depreciation could affect operating results and financial position, and the high overseas ratio is a factor that magnifies the scale of this risk.

With respect to raw materials and fuel procured both domestically and internationally, there is a risk that supply restrictions or transportation difficulties caused by supply-demand fluctuations, disruptions to logistics networks, or conflicts in the Middle East could hinder production and shipping activities. There is also a risk that procurement of raw materials from overseas could become difficult due to tightening environmental regulations in various countries. Although the Group is pursuing diversification of procurement sources and consideration of in-house production, cost increases or difficulty in obtaining materials could affect operating results.

There is a risk of exposure to an intense competitive environment due to intensifying price competition with competitors, changes in market and customer needs, new market entrants, and other factors. Although the Group is working to optimize prices in response to rising costs and increased logistics costs, this could result in a decline in market share or a decrease in profit.

With respect to marketable securities such as shares held to maintain and promote business relationships, a decline in market prices could require the recognition of valuation losses. In addition, although a portion of interest-bearing debt is addressed through fixed-rate conversion and interest rate swaps, fluctuations in market interest rates could still affect operating results and financial position.

Given the nature of the business, which handles various chemical substances, compliance with environmental regulations both in Japan and overseas is essential, and tightening of regulations could result in significant compliance costs or restrictions on business activities. There is also a risk that procurement of raw materials could become difficult due to environmental regulations in various countries, and as a chemical manufacturer, the impact of regulatory compliance costs on management is wide-ranging.

Intentional acts including cyberattacks, negligence-related leakage of confidential information or personal information to outside parties, and information security incidents caused by natural disasters could have a significant impact on business activities. Amid ongoing global reforms and strengthened enforcement of systems related to personal information and data protection, a violation could result in loss of social trust and the imposition of substantial fines.

The Group has important production and R&D bases in Fukushima Prefecture, Kanagawa Prefecture, Ibaraki Prefecture, Yamaguchi Prefecture, and Chungcheongbuk-do, South Korea, and equipment damage caused by large-scale earthquakes, typhoons, and other natural disasters could disrupt plant operations and supply to customers. Although the Group works on periodic inspection of manufacturing equipment and the formulation and strengthening of BCP, the risk of physical or human damage or environmental pollution arising from accidents at manufacturing facilities cannot be completely eliminated.

There is a risk that other companies could analyze the Group's intellectual property rights and products to develop similar technologies or products, while there is also a possibility that the Group could be sued for allegedly infringing the intellectual property rights of other companies. In either case—whether the Group's intellectual property rights are infringed or the Group is alleged to have infringed those of others—restrictions on business activities or damages claims could affect operating results and financial position.

While the Group promotes cutting-edge research and development leveraging fundamental technologies and know-how such as organic synthesis, as well as joint development with customers, there is always a possibility of unforeseen changes in development policy due to sudden shifts in market or customer needs. A change in development policy could impair research and development investments and affect operating results and financial position.