TAOKA CHEMICAL COMPANY, LIMITED

A portion of net sales is highly dependent on specific customers, and no long-term supply contracts have been concluded with them. Since the second half of FY2025, sales of resin raw materials have been declining, and a decline in demand due to customers' changes in manufacturing processes or other factors could adversely affect the financial position and business results. As countermeasures, the Group is promoting a shift to high-value-added new products, strengthening cost competitiveness, and building an optimal production system across its flexible plants.

The Group procures numerous raw materials, including petrochemical products linked to crude oil and naphtha prices, from Japan and overseas. Raw material prices have recently surged due to international turmoil centered on the situation in Iran. Although the Group strives to pass on cost increases to product prices in a timely manner, there is no guarantee that the impact can be fully avoided, and if procurement becomes difficult, it could adversely affect the financial position and business results.

The Group supplies products directly and indirectly to domestic and overseas markets and is affected by economic conditions in major markets, including Japan and Asia. A decline in demand due to an economic downturn could adversely affect the financial position, business results, and cash flows.

Since raw material procurement from overseas exceeds product sales to overseas markets, a weaker yen could adversely affect the Company through increased procurement costs. Although the Company takes measures such as using foreign-currency-denominated trade receivables to settle foreign-currency-denominated trade payables, there is no guarantee that all foreign exchange risk can be avoided, and there is also a financial impact from the yen conversion of overseas affiliated companies' results.

The Group is promoting research and development from a medium- to long-term perspective across a wide range of areas, from improving existing products to new fields. However, due to development speed, timing, and the presence of competitors, results may not be directly reflected in business results. There is an inherent risk that R&D investment may not yield the expected returns.

There is a risk that accidents such as fires at plants, power outages, and natural disasters such as earthquakes and floods could affect production activities. Although the Group implements measures such as periodic inspections, employee training, and disaster prevention drills, there is no guarantee that these risks can be completely eliminated, and they could adversely affect the financial position and business results.

Although the Group manufactures products in accordance with globally recognized strict quality control standards, the occurrence of unforeseen serious quality problems cannot be completely ruled out. Although the Group has product liability insurance, if a large-scale product liability issue occurs in which the amount of damages exceeds the insurance coverage, it could have a material adverse effect on the financial position and business results.

The Group has production and sales bases overseas, and unexpected changes in laws and regulations in the countries where it operates, unfavorable political or economic factors, or social unrest caused by terrorism or war could adversely affect the financial position and business results. No specific countermeasures are disclosed.

The Group's plants are, as a result, located in urban areas. Although measures are taken to address noise and odor issues, there are unforeseeable risks such as complaints from residents, anti-company movements, and the possibility of disputes developing into litigation resulting in compensation obligations. It cannot be denied that these could adversely affect the financial position and business results.

Computer processing is used throughout the Company's overall operations, creating risks of system trouble, data destruction, and information leakage due to external virus attacks, hacking, or hardware damage caused by disasters. Although measures such as restricting external connections, intrusion prevention, backup systems, and employee training are implemented, complete prevention cannot be guaranteed.