AICA KOGYO CO.,LTD.

With overseas sales ratio reaching approximately 50% amid global business expansion, there is a possibility that demand decline or business suspension may occur due to geopolitical risks such as economic fluctuations, changes in laws and regulations, war, terrorism, and economic friction. Sudden tariff measures or protectionist policies introduced by specific countries may directly or indirectly affect the supply chain, potentially leading to increased product costs and restricted market access. As countermeasures, the company implements monitoring by external third-party organizations, strengthens local governance through overseas holding companies, and utilizes local management talent and partners.

Numerous competitors exist in both the Chemical Products and Interior & Building Materials segments, and the products demanded are constantly changing due to diversifying market and customer needs. Intensifying competition or delayed response to changing needs may result in declining sales share, falling sales prices, and increased inventory buildup, which could affect business performance. As countermeasures, the company promotes highly original technology development, diversifies dependent markets, accumulates and creates next-generation core technologies through industry-government-academia collaboration, and advances large-scale new product development utilizing M&A.

Interior & Building Materials products, which account for a high proportion of sales composition, are mainly for construction and renovation of residences, stores, and public facilities in Japan, and the exterior/interior finishing coatings and flooring materials in the Chemical Products segment are also used as domestic construction materials. If domestic construction demand or renovation demand declines, this may have a direct impact on business performance and financial condition. As countermeasures, the company aims to develop new markets by nurturing total space proposal products and to transform into a business structure less dependent on construction demand by allocating management resources to functional materials businesses for automobiles, electronics, and daily consumer products.

The company actively pursues capital alliances such as corporate acquisitions for the purpose of business expansion and profitability improvement, but if previously unrecognized issues emerge after an acquisition, or if expected synergy effects are not achieved due to significant changes in the business environment, impairment losses may occur on recorded goodwill. As countermeasures, the company conducts thorough due diligence and valuation of acquisition targets and sufficient deliberation at board meetings, while also engaging external experts and developing internal talent. After investment, the company works to maximize synergies and address issues early through performance analysis and information sharing among companies.

There is a risk that prices of key raw materials and fuel may surge due to rising crude oil and naphtha prices caused by heightened geopolitical risks including the situation in the Middle East, as well as imbalances in the supply-demand balance of raw materials. In addition, consolidations, policy changes, plant troubles, or disasters affecting supplying manufacturers may make it difficult to procure certain raw materials, potentially disrupting production activities. As countermeasures, the company promotes purchasing from multiple domestic and overseas suppliers, strengthens communication with business partners, builds a stable supply system through group collaboration, and responds swiftly to securing alternative products and changing procurement routes in the event of unforeseen circumstances.

As a physical risk, there is a possibility of business site function suspension and manufacturing equipment damage due to weather disasters such as typhoons, floods, and extreme heat, while as a transition risk, increased demand for greenhouse gas reduction products, increased capital investment for introducing new technologies, and rising raw material prices are anticipated in association with the transition to a low-carbon society. If the response to strengthened regulations aimed at climate change mitigation is insufficient, this may lead to operational restrictions, new tax burdens, renewable energy shift costs, and increased investment in high-efficiency production equipment. As countermeasures, the company has established a BCP subcommittee to analyze and monitor physical risks, a Climate Change Response Subcommittee to examine and implement greenhouse gas reduction measures, and a semi-annual reporting system through the Sustainability Promotion Committee.

The company is affected by foreign exchange fluctuations in foreign currency-denominated transactions, and exchange rate fluctuations may also affect business performance and financial condition when translating financial statements of overseas group companies into yen. While hedging measures such as forward foreign exchange contracts are implemented, complete avoidance is difficult, and given the large number of overseas group companies, the scale of translation risk is also significant. As countermeasures, the company works to reduce risk by entering into forward foreign exchange contracts and to optimize its portfolio to mitigate the impact of fluctuations in a single currency.

In the course of business operations, the company holds a large amount of personal information and confidential information and uses various systems and networks, creating the possibility of information leakage, disclosure, tampering, or ransomware intrusion caused by cyberattacks or virus infections by malicious third parties. If system infrastructure is disrupted by natural disasters or other causes, resulting in the suspension or delay of critical operations, this may result in substantial cost burdens and a decline in social credibility. As countermeasures, the company works to strengthen information leakage prevention and reduce the risk of business suspension through compliance with the Aica Group Basic Principles for Information Security, thorough enforcement of internal rules via information management regulations, system redundancy, and construction of data backup systems.

Securing and developing specialized talent and global talent in fields such as manufacturing, sales, development, management, and IT is necessary, but competition for talent acquisition is intense in Japan due to the declining working population caused by the falling birthrate and aging population, and competition in talent acquisition markets is also intensifying overseas as economies develop. If talent recruitment and development do not proceed as planned, business activities may be restricted, potentially affecting business performance and financial condition. As countermeasures, the company actively promotes recruitment of new graduates and experienced personnel domestically while enhancing human resources and education systems, and overseas, actively appoints local talent and works to create a highly motivating environment by respecting the labor practices of each country.

The company is subject to legal regulations such as laws and licensing requirements in each country, and there is a possibility that business activities may be restricted or compliance costs may increase due to legal amendments or strengthened regulations. Violations of laws or actions contrary to social norms may result in legal penalties, litigation, or social sanctions, and the resulting decline in social credibility could have a material impact on business performance and financial condition. As countermeasures, the Aica Group Code of Conduct establishes conduct based on high ethical standards including compliance with laws in each country, respect for human rights, and anti-corruption, and the company works to raise compliance awareness through training, establishment of regulations, and dissemination to officers and employees.