KANEKA CORPORATION

Sudden changes in economic activity, rapid technological innovation, natural disasters, or pandemics could adversely affect the Group's financial position, business results, and cash flows. The Group is working to secure business competitiveness through the integration of proprietary technologies with external advanced technologies, development of high-value-added products, construction of a global network, and business structural reform; however, there is a risk that responding to unforeseen environmental changes may prove difficult.

Overseas business activities entail risks such as unpredictable changes in laws, regulations, and tax systems, taxation under transfer pricing rules, and social and political turmoil due to terrorism or war. The Group has implemented measures such as strengthening governance at group companies, establishing a specialist framework, obtaining insurance coverage, and taking employee safety measures; however, if these events materialize, they could adversely affect the Group's financial position, business results, and cash flows.

As the Group operates globally, its earnings are exposed to the risk of being affected by sudden foreign exchange fluctuations. Although the Group has implemented measures to strengthen its resilience to exchange rate fluctuations, if exchange rates move beyond expected ranges, this could adversely affect the Group's financial position, business results, and cash flows.

Many of the raw materials and fuels used by the Group are internationally traded commodities. The Group has established a most-favorable procurement system by combining global purchasing, mid- to long-term contracts, and spot market purchases; however, if unexpected price fluctuations occur, this could adversely affect the Group's financial position, business results, and cash flows. Since raw material and fuel costs are directly linked to the profit structure as a manufacturing business, price surges become a factor that squeezes profits.

Unexpected product accidents or large-scale natural disasters such as earthquakes could cause damage to major manufacturing facilities or system failures, resulting in business interruption and lost opportunities. The Group has obtained liability insurance covering the entire group, but there is a risk that losses exceeding the scope of coverage could occur, which could adversely affect the Group's financial position, business results, and cash flows.

With globalization and advances in information technology, there are risks such as the leakage or unauthorized use of technical know-how developed by the Group, as well as disputes related to licensing. The Group conducts patent searches at key milestones in business development to secure patent clearance; however, if disputes arise, this could adversely affect the Group's financial position, business results, and cash flows.

Environmental regulations are being strengthened year by year, and depending on the content of such regulations, restrictions on activities within the business supply chain could arise, potentially adversely affecting the Group's financial position, business results, and cash flows. The Group is engaged in efforts to reduce environmental impact based on its ESG Charter, supports the TCFD recommendations, and works toward achieving carbon neutrality; however, depending on the pace of regulatory tightening, there is a risk that compliance costs could increase.

In the course of domestic and overseas business activities, there is a risk of facing unexpected litigation or administrative actions. The Group places emphasis on compliance-focused management and thoroughly ensures adherence to laws and social norms; however, if significant litigation or similar actions are brought, this could adversely affect the Group's financial position, business results, and cash flows.

Risks of system failures and information leaks due to cyberattacks, unauthorized access, disasters, and similar causes are increasing, and could have a significant impact on business activities overall. The Group has implemented measures such as building a risk management system led by management based on its Basic Policy on Information Management, utilizing the expertise of external specialists, strengthening security systems, and providing employee training; however, if an unforeseen event occurs, this could adversely affect the Group's financial position, business results, and cash flows.

Multiple financial accounting risks exist, including the recognition of valuation losses due to significant declines in the market value of held shares, recognition of impairment losses on fixed assets, recognition of valuation losses on inventories, underfunding of retirement benefit obligations, and reversal of deferred tax assets. If there is a significant deterioration in the business environment, interest rate fluctuations, deterioration in pension asset management performance, or divergence from projected taxable income, this could adversely affect the Group's financial position, business results, and cash flows.