SUGAI CHEMICAL INDUSTRY CO., LTD.

Net sales are affected by the final product sales conditions and new product development status of pharmaceutical and agrochemical manufacturers. In particular, Agrochemical Intermediates account for a high proportion of sales, resulting in a seasonally skewed structure with sales concentrated in March. As countermeasures, the company is promoting information gathering on related industries, sales activities to secure early order confirmation, and new product development in Functional Intermediates.

If the yen depreciates in the procurement of foreign currency-denominated raw materials, import purchase amounts will increase, and if the yen appreciates with respect to foreign currency-denominated export sales, export sales amounts will decrease. Hedging measures such as forward exchange contracts are employed, but it is not possible to eliminate all effects, and this may impact the financial position and business results.

Since the company adopts a production method based on forecasted orders, there is a risk that inventories may increase due to deterioration in customers' sales conditions or inventory adjustments. The company addresses this through sales activities to secure early order confirmation and a flexible production switching system using multi-purpose plants, but the impact of demand fluctuations cannot be completely eliminated.

As of the end of March 2026, the balance of interest-bearing debt was ¥1,423 million, and interest rate fluctuations may affect business performance. The company addresses this through a commitment line agreement totaling ¥2.0 billion and securing long-term stable funds at fixed interest rates, but the risk remains that business performance may fluctuate in the event of a sudden change in interest rates.

As an organic chemicals manufacturer, if accidents or pollution issues such as fire, explosion, chemical substance leakage, soil contamination, foul odor, or exhaust gas occur, this could result in a loss of social credibility and a material impact on business results. The company strives to maintain safe and stable operations through periodic maintenance inspections, patrols, and safety training of equipment, but the risk cannot be completely eliminated.

Although plants are dispersed between Wakayama City, Wakayama Prefecture, and Fukui City, Fukui Prefecture, if operations are suspended due to a large-scale earthquake, natural disasters associated with climate change, infectious diseases, or other causes, this may affect business performance. The company is strengthening its response through regular emergency drills and the establishment of an emergency response headquarters headed by the president, which can be immediately activated, along with a BCP execution framework.

In addition to procurement disruptions caused by disasters or accidents affecting raw material supplier manufacturers or transportation blockages, fluctuations in crude oil and naphtha prices and precious metal prices may affect raw material purchase prices, thereby impacting the financial position and business results. In particular, uncertainty in the availability of naphtha-derived raw materials and the risk of price surges due to the situation in the Middle East have become apparent; while measures such as multiple sourcing are being implemented, long-term impacts cannot be ruled out.

If a failure of information systems or leakage of confidential information or personal information outside the company occurs due to cyberattacks, unauthorized access, or other causes, this may affect the financial position and business results due to a decline in social credibility. The company is implementing security measures for information systems and networks, thorough employee education, and stricter information management systems.

The company holds marketable securities primarily in business partners, and fluctuations in share prices may affect the financial position and business results. The company strives to reduce the impact on business performance through continuous review and disposal of held shares, but risk from market conditions remains.

Financial maintenance covenants are attached to a portion of the company's borrowings, and if these covenants are not satisfied, this could result in the termination of lending obligations by the bank syndicate, which may have a material impact on the financial position and business results. While maintaining financial discipline is required, the company has a structural vulnerability in which the risk of covenant breach increases during periods of deteriorating business performance.