TOKYO OHKA KOGYO CO., LTD.

Materials for semiconductors and displays, which are the mainstay of the Group, are strongly affected by the cyclical market fluctuations unique to the electronics industry. The rapid pace of technological innovation and the increasingly complex and diverse needs of users create a risk that market conditions and price fluctuations will directly affect business performance. Due to the high degree of dependence on specific markets, downturns in the demand cycle can have a significant impact on sales and profits.

The Group operates production and sales bases in North America, Europe, and Asia, and foreign exchange fluctuations in overseas transactions affect business performance. While some hedging is conducted through yen-denominated processing and forward exchange contracts, exchange rate fluctuations exceeding expectations may pose a risk that outweighs the hedging effect. As global operations expand, foreign exchange exposure is expected to continue going forward.

In the electronics industry, where technological innovation is intense, the Group continues to invest in research and development to maintain competitiveness; however, it is difficult to accurately predict technological innovation and changes in user needs. If research and development into which management resources have been invested fails to achieve sufficient results for unforeseen reasons, recovery of the investment may become difficult, potentially adversely affecting business performance. This uncertainty regarding outcomes tends to be particularly evident in the development of materials for advanced processes.

The Group holds and licenses numerous intellectual property rights, and also obtains licenses from third parties. If protection, maintenance, or acquisition of such rights does not proceed as planned, there is a risk of becoming a party to disputes or litigation concerning intellectual property rights. This may result in litigation costs and damages, which could affect business performance and the continuity of operations.

While the Group secures multiple procurement sources for the various raw materials required for production activities, there is a risk that production activities could be halted due to supply delays or interruptions caused by accidents at raw material manufacturers or geopolitical risks. In addition, rising raw material prices may put pressure on business performance through increased costs. Amid heightening geopolitical tensions, dependence on procurement from specific regions is a factor increasing the risk of supply disruption.

The Group operates manufacturing plants both domestically and overseas. In the event of natural disasters such as earthquakes or unforeseen accidents such as fires or explosions, shipment delays due to production stoppages and costs associated with repairs or alternative production may occur. There is also a risk of temporary suspension of operations due to the spread of infectious diseases such as COVID-19 or influenza. Although management systems have been established for infection prevention and containment, complete avoidance is difficult.

The Group uses various chemical substances in its production activities. If an accidental external leak occurs, it could result in significant impacts such as loss of social credibility, compensation and remediation costs, and production stoppages. In addition, if environmental laws and regulations in various countries become stricter in the future, this could lead to increased cost burdens and restrictions on business activities. Although thorough countermeasures have been implemented, the trend toward stricter regulation is irreversible and could become a factor increasing costs over the medium to long term.

The Group utilizes various information systems in the conduct of its business, and while appropriate system management structures and security measures have been implemented, risks related to information systems continue to increase due to the growing sophistication and complexity of cyberattacks. If information leakage or system downtime occurs, it could impede business continuity and lead to liability for damages to customers and business partners, as well as damage to corporate credibility. Together with information leakage risk, this risk is becoming increasingly important as reliance on digital technology grows.

The Group conducts production and sales activities in North America and Asia, and sales activities in Europe. Overseas business inherently involves risks such as unexpected changes in laws and regulations, fragile industrial infrastructure, difficulty securing human resources, terrorism and war, and natural disasters. Should these risks materialize, they could disrupt overseas business activities and affect business performance. Given the heightening of geopolitical tensions and trends toward stricter regulations in various countries, the compound materialization of multiple risks is also anticipated.

If manufacturing plants and suppliers, both domestically and overseas, suffer severe damage due to abnormal weather, floods, droughts, or other events caused by climate change, this could disrupt production activities and affect business performance. In addition, as the transition to a decarbonized society progresses, various countries are introducing or considering policies and regulations such as carbon taxes, creating a risk of pressure on profitability through increased energy and raw material costs. As both physical risks and transition risks can affect business performance, this is becoming an important medium- to long-term issue.