ZEON CORPORATION

An economic downturn in major markets such as Japan, North America, Europe, and Asia (including financial market turmoil, natural disasters, and the spread of infectious diseases) could reduce demand for the Group's products and adversely affect its business performance and financial condition. As countermeasures, the Group is promoting thorough cost reductions through the "ZΣ Movement," improving the profitability and global expansion of the Elastomer Materials Business, and developing new high-value-added products in the High-Performance Materials Business.

In global operations spanning Japan, North America, Europe, and Asia, sales, expenses, assets, and liabilities denominated in local currencies are affected by exchange rates when converted into yen. Appreciation of currencies in production regions may push up procurement and manufacturing costs, reducing profit margins and price competitiveness. Although the impact of short-term fluctuations is minimized through forward exchange contracts and similar measures, the Group may not be able to fully address sharp short-term fluctuations or medium- to long-term currency movements.

Particularly in the Elastomer Materials Business, trends in the prices of crude oil, naphtha, and other key raw materials significantly affect manufacturing costs. If market prices surge beyond expectations due to geopolitical factors, or if supply-demand tightness arises from resource nationalism, the Group may be unable to pass on such cost increases to product prices in a timely manner, resulting in deteriorated profitability. The Group strives to maintain profitability through timely and appropriate pass-through of price fluctuations to product prices.

The Group is highly dependent on external sources for naphtha, its main raw material. If political instability in producing countries or accidents/disasters affecting suppliers lead to prolonged operational difficulties, stable procurement may become difficult, adversely affecting business performance and financial condition. The Group strives to minimize such impact through the formulation of business continuity plans (BCPs) and regular equipment inspections, but there is no guarantee that such impact can be fully prevented or mitigated.

The electronics industry, a key market for the High-Performance Materials Business, is characterized by extremely rapid technological innovation. If R&D investment fails to yield results due to unforeseen market changes or rapid technological advances, the Group risks failing to develop attractive new products, which could reduce future growth and profitability. The Group continues to invest in R&D aimed at accurately grasping customer needs and achieving timely new product launches, but there is no guarantee of success.

It may not be possible to completely prevent other companies from developing similar or superior technologies, or from imitating or analyzing the Group's patents and trade secrets. There is also a risk that the Group's products or technologies could be alleged to infringe on the intellectual property rights of other companies. As countermeasures, the Group works to secure rights for its own technologies both in Japan and overseas, keep know-how confidential (black-boxing), and investigate and respond to other companies' intellectual property before launching new products.

As an operator of critical infrastructure that runs plant control systems and various business systems, and that holds trade secrets including personal information, the Group is exposed to risks such as cyberterrorism, unauthorized access, information leaks, and system malfunctions. If such risks materialize, business activities including production could be disrupted, adversely affecting business performance and financial condition. The Group is advancing system maintenance and updates, defense against unauthorized access, and thorough information management, but complete prevention cannot be guaranteed.

The Group is subject to a wide range of public regulations in each country where it operates, including export controls, anti-bribery regulations, and import/export regulations such as tariffs. Failure to comply, or changes in laws and tighter regulations, could restrict business activities or increase costs. In addition, as broader and more advanced corporate social responsibility, including environmental and human rights issues, is increasingly demanded, an impact on business activities including the supply chain is also anticipated. The Group is working to strengthen its compliance system through ongoing education.

Intensifying extreme weather caused by climate change could damage business sites and the supply chain, raise the prices of raw materials and utilities, change customer behavior, and give rise to social responsibilities related to climate change response, any of which could adversely affect business performance and financial condition. The Group discloses information in line with TCFD recommendations and is promoting measures such as energy conservation and fuel switching, as well as long-term R&D, but cannot completely eliminate this risk.

If disruptive events such as disasters, power outages, or earthquakes occur at production facilities, or if business activities are restricted due to the spread of infectious diseases, production and business performance could be adversely affected. The Group conducts regular disaster prevention inspections and equipment checks, formulates BCPs, and conducts emergency drills, but there is no guarantee that such impact can be completely prevented or mitigated. In particular, given the high dependence on external sources for naphtha procurement, a prolonged supply disruption would have a significant impact.