Kawaguchi Chemical Industry Co., Ltd

The Group's products are used in a wide range of fields, including automobiles and medical/electronic materials, and are directly affected by the economic conditions in each field. A recession or demand fluctuation in Japan or overseas may have a wide-ranging impact on sales and profits. If dependence on a specific sector is high, there is a risk that a downturn in that sector's business conditions will spread to overall performance.

Since the main raw materials are based on crude oil, fluctuations in naphtha prices and exchange rates directly affect raw material costs. In addition, if a supply shortage occurs due to geopolitical risk or changes in the supply-demand balance, raw material prices may rise further, putting pressure on performance through higher manufacturing costs. If cost pass-through is difficult, there is a risk that profit margins will decline.

International competition is intensifying in the markets where the Group operates, and existing competitors may have higher competitiveness than the Company. As new entrants increase, products may be exposed to severe price competition, and price-cutting pressure to maintain market share or a decline in market share may affect performance. As a countermeasure, the Company is working to reduce manufacturing costs through day-to-day rationalization and cost reduction efforts.

Due to geopolitical risk and a decline in domestic and international transport volume stemming from work-style reform related laws in Japan, delays in procurement of raw materials or delivery of products may occur. In addition, supply disruptions caused by accidents, quality defects, or natural disasters at raw material manufacturers could impede production activities, posing a risk to business performance and financial condition. The Company strives for stable procurement by securing multiple supply sources, but the risk cannot be completely eliminated.

Although the Company has established a quality management system based on ISO9001 and implements strict quality control, the possibility of product defects or complaints cannot be completely eliminated. If defects related to non-conformity liability or product liability occur, damage compensation and repair costs may arise, affecting performance. The Company has taken out product liability insurance to reduce risk in the event of unforeseen trouble.

Since the Company holds foreign currency-denominated receivables and payables, fluctuations in exchange rates may affect performance. The Company manages this risk using hedging tools such as forward exchange contracts, but there is a risk that hedges may not function sufficiently in the event of sudden exchange rate fluctuations. Since naphtha, a raw material, is also linked to exchange rate movements, the impact of exchange rate fluctuations may be felt twice over, also affecting procurement costs.

The Group's production and logistics sites are concentrated in Saitama Prefecture, and in the event of a large-scale disaster or accident such as an earthquake or typhoon, there is a risk that business continuity could become difficult due to the destruction of production facilities or the cessation of logistics functions. Due to the geographic concentration of sites, a single disaster could have a severe impact on the entire business. No specific description of a BCP (Business Continuity Plan) has been confirmed in the securities report.

Due to the sophistication and increasing complexity of cyberattacks, internal misconduct, system failures, and supply chain vulnerabilities including those of outsourcing partners, information leaks, data tampering, service outages, and other incidents may occur. If such events materialize, there is a risk of a significant impact on performance and financial condition due to loss of trust from customers and business partners, claims for damages, and administrative sanctions. The Company has implemented various security measures, but states that the risk cannot be completely eliminated.

The Company has one subsidiary in the People's Republic of China, and there are latent risks specific to overseas operations, such as unforeseen changes in laws and regulations or political and economic instability. If these risks materialize, the suspension of business activities and other consequences may affect performance. The Company responds by appropriately monitoring changes in legal regulations and political and economic conditions through its subsidiary, but this is a risk that requires continued attention given rising geopolitical tensions.

Since a wide variety of chemical substances are used in its products, the tightening of environmental regulations poses a risk of directly constraining business activities. If new, stricter environmental regulations are enacted, the Company may need to discontinue manufacturing certain products or make new capital investments, which could affect performance. The Company is addressing environmental management such as ISO14001 and working on energy conservation and reducing emissions of environmentally hazardous substances, but continuous response is required to keep up with changes in regulatory trends.