MITSUBISHI GAS CHEMICAL COMPANY, INC.

Market-driven products such as Methanol, general-purpose aromatic products, and general-purpose polycarbonate resin are prone to decreased sales volume and price declines during economic downturns, and even specialty and high-value-added products are affected by demand fluctuations such as the silicon cycle. In addition, products for advanced semiconductors have short product lifecycles and are subject to intense technological innovation competition, creating a risk that revenue could decline due to obsolescence of existing products or delays in developing new products. As countermeasures, the Group is working on concluding long-term supply contracts, maintaining close information exchange with customers, and developing new markets and business fields with high added value.

The Group procures raw materials such as raw material xylene and electricity from external sources, and a sharp rise in prices could adversely affect its business performance and financial condition. In addition, if necessary raw materials, supplies, equipment, or services become unobtainable, manufacturing activities could be disrupted. The Group aims to reduce such risks by procuring from multiple suppliers and concluding long-term purchase contracts.

The Group operates manufacturing, sales, and procurement businesses in Asia, North America, South America, the Middle East, and other regions, and deterioration in geopolitical conditions, natural disasters, military tension or war, and the spread of infectious diseases could make it difficult to conduct business activities or remit funds and profit dividends. There are also risks arising from investment restrictions imposed by foreign governments, nationalization or expropriation of assets, and issues stemming from differences in legal systems. The Group strives to build a rapid response framework through information gathering from locally dispatched officers and employees, joint venture partners, and relevant authorities.

The Group has numerous manufacturing joint ventures in Saudi Arabia, Venezuela, Thailand, China, South Korea, Trinidad and Tobago, and other locations, through which it procures and sells Methanol, synthetic resins, and other products. However, since joint venture partners are not under the control of the Group, there is no guarantee that optimal decisions will always be made. If a situation arises in which a joint venture cannot be maintained, this could adversely affect business performance and financial condition. The Group works to maintain and strengthen good communication with joint venture partners and to reduce risk through joint venture agreements and other means.

If natural disasters such as earthquakes or storm and flood damage, equipment troubles, or accidents such as explosions, fires, or toxic gas leaks occur at numerous manufacturing sites in Japan and overseas, manufacturing activities could be halted and damage could occur to the surrounding environment. There is also a risk that, due to shared utility equipment, the shutdown of a single facility could lead to the suspension of manufacturing at an entire site. The Group addresses this through the promotion of Responsible Care activities, formulation of business continuity plans, diversification of manufacturing sites, and various types of insurance coverage.

If confidential information or personal information related to business activities is leaked, or if fraudulent acts by cyber-attacks or malicious third parties, or troubles with information systems occur, this could adversely affect business activities and performance. As digitalization progresses, dependence on various information systems is increasing, raising the significance of this risk. The Group implements measures to improve literacy through the development of internal regulations and employee education, along with continuous security enhancement initiatives.

Due to the nature of its business, which involves handling hazardous chemical substances such as poisonous and deleterious substances, dangerous goods, and high-pressure gas, the Group is subject to various regulations under laws in Japan and overseas, and violations could result in legal liability, remediation costs, social sanctions, and loss of credibility. Compliance with laws and regulations is required not only in transactions but throughout all business activities, as is the fulfillment of social responsibility. The Group addresses this through the establishment of specialized departments, measures to raise compliance awareness, and the development of internal whistleblowing systems.

If efforts to reduce greenhouse gas emissions are insufficient, in addition to social sanctions and loss of credibility, the Group could become vulnerable to the imposition of carbon taxes and the introduction of various emissions regulations such as emissions trading systems, which could adversely affect business performance and financial condition. Under its endorsement of the TCFD recommendations (May 2019), the Group conducts scenario analysis based on decarbonization and business-as-usual scenarios, and is promoting specific reduction measures such as the introduction of CCUS and renewable energy toward achieving carbon neutrality by 2050.

If business investments such as capital expenditures, R&D investments, establishment of joint ventures, or corporate acquisitions fail to generate the expected returns, or if the valuation of held securities declines significantly, impairment of fixed assets, valuation losses on securities, investment losses under the equity method, and other effects could occur, adversely affecting business performance and financial condition. The Group takes appropriate countermeasures through the development and operation of internal review systems and by appropriately monitoring the business status after investment.

Fluctuations in foreign exchange rates in foreign-currency-denominated transactions such as exports and imports could lead to decreased sales revenue or increased losses, and business performance and financial condition could also be affected by the exchange rates used when translating the financial statements of overseas subsidiaries into yen. In addition, there is a risk that sudden changes in the financial environment could make fund procurement difficult, or that rising interest rates could increase interest expense. The Group addresses this through hedging via forward foreign exchange contracts, an appropriate combination of fixed and floating interest rates, and diversification of funding sources.