NIPPON SHOKUBAI CO., LTD.

Main raw materials are highly correlated with crude oil and naphtha prices, and if sharp price fluctuations occur due to geopolitical risks such as the situation in the Middle East and Ukraine or exchange rate movements, there is a risk that increases in raw material costs cannot be fully and immediately passed through to product prices. The adoption of formula-based pricing has reduced this risk by approximately 70-80%, but as it has not been applied to all products and all customers, there remains an impact on business performance and financial position.

With overseas revenue accounting for approximately 56% of total revenue, the assets and liabilities of overseas consolidated subsidiaries are translated into yen at the fiscal year-end rate, while revenue and expenses are translated at the average rate during the period, so exchange rate fluctuations directly affect business performance. In addition to hedging foreign currency-denominated receivables and payables through forward exchange contracts, exchange rate fluctuations also spill over into procurement costs for yen-denominated raw material purchases indexed to US dollar-denominated crude oil and naphtha prices, potentially affecting business performance and financial position.

The Materials Business, including Acrylic Acid & Acrylate Esters and Superabsorbent Polymer (SAP), has become more susceptible to market fluctuations due to intensifying competition, and the company is promoting a portfolio transformation toward the Solutions Business, which is expected to generate more stable earnings. However, if this transformation is delayed or if sudden shifts in market needs prevent the Solutions Business from generating sufficient earnings, it may become difficult to achieve medium- to long-term growth targets, potentially affecting business performance and financial position.

Tangible fixed assets such as manufacturing equipment account for approximately 38% of total assets, and inventories account for approximately 15%. If a sharp deterioration in the supply-demand balance or other factors causes a significant decline in product market conditions, there is a risk of impairment losses on fixed assets or write-downs of inventory valuations. Chemical product market conditions are highly susceptible to economic trends and competitive dynamics, and large-scale valuation losses could have a significant impact on financial position.

The company relies on external procurement for a substantial portion of its main raw materials and fuels, including petroleum- and naphtha-derived materials such as ethylene and propylene, mineral raw materials, and liquefied natural gas, and procurement may become difficult due to supply chain disruptions caused by conflicts or supply restrictions arising from political tensions. While the company addresses this through building a procurement system spanning multiple regions and suppliers and securing a certain volume of raw materials, prolonged disruptions could hinder the continuity of manufacturing activities, potentially affecting business performance and financial position.

If a large-scale earthquake, tsunami, accident, or other event occurs at the Himeji Plant or Kawasaki Plant, which are core manufacturing sites, there is a risk that the production capacity of major products could be significantly reduced. While countermeasures have been implemented through BCP formulation and Responsible Care activities, complete continuity of production activities cannot be guaranteed in the face of natural disasters, infectious diseases, power outages, and other events, which may affect business performance and financial position.

The company holds confidential information such as R&D technology and know-how, sales information, production data, and accounting data in electronic form, and if information leakage or loss to outside parties occurs, it could result in a decline in competitive advantage relative to competitors, the emergence of similar products, and long-term business disruption, among other serious impacts. While measures such as establishing an information security policy, enhancing cybersecurity, diversifying data centers, and providing employee training have been implemented, this risk cannot be completely eliminated.

If the company fails to appropriately respond to natural disaster risks associated with climate change or to the transition toward a decarbonized society, this could adversely affect business activities. In addition, if environmental regulations are tightened, new legal or social responsibilities arise, or environmental contamination occurs from conduct predating legal regulation, this could result in increased countermeasure costs or restrictions on manufacturing and sales due to administrative guidance, potentially affecting business performance and financial position. The company is promoting responses through endorsement of and disclosure in line with TCFD and through Responsible Care activities.

In domestic and overseas M&A and capital alliances aimed at expanding business and strengthening competitiveness, if changes in the business environment or other factors prevent the initially expected synergies or new business creation from being realized, or if impairment losses on goodwill or the book value of shares are recognized due to poor performance of investee companies, this could affect business performance and financial position. While thorough prior due diligence and risk assessment of target companies are conducted, it is difficult to fully predict future changes in the business environment.

While the company promotes multi-layered R&D and open innovation, there is a risk that R&D failures or sudden shifts in market needs could prevent the creation of products that generate returns commensurate with investment or that are highly profitable. In addition, while patent infringement by other companies cannot be completely prevented, there is a possibility that disputes over intellectual property rights with other companies may arise in the future in connection with business development in new product areas, and judgments unfavorable to the company group could result; either of these could affect business performance and financial position.