Nippon Fine Chemical Co., Ltd.

Sharp fluctuations in the prices of animal and vegetable fats and oils, which are key raw materials, may affect operating results. Supply shortages and logistics disruptions caused by accidents at suppliers, natural disasters, wars, or the spread of infectious diseases also constitute procurement risks. The Company works to reduce these risks through cost reduction, pass-through of selling prices, and stable procurement from multiple suppliers.

The existence of competitors offering similar products and services may result in delayed response to market needs or price competition, which could affect operating results. Setting prices on par with competitors may in some cases result in losses. The Company strives to maintain competitiveness through early introduction of new products based on business portfolio analysis, use of proprietary technology, capacity expansion, cost reduction, and withdrawal from businesses with low growth potential.

Costs may increase due to stricter regulations aimed at reducing greenhouse gas emissions, the shift to renewable energy, and the introduction of carbon pricing. There is also a risk that delayed environmental response could lead to decreased demand for products and services or loss of customers. The Company promotes initiatives aligned with TCFD recommendations and activities to reduce environmental impact across the supply chain.

As digitalization of society progresses, the threat of cyberattacks is rapidly increasing, and if countermeasures are inadequate, this could result in the leakage of personal information or confidential information, or business suspension due to server outages. There is also a risk of fines and damages resulting from violations of personal information and data protection regulations in various countries. The Company works to reduce this risk through the development of IT systems and personal information protection rules, renewal of the IT infrastructure of core systems, and establishment of an incident response framework.

Amid ongoing enactment, revision, and stricter interpretation of laws and regulations in Japan and overseas, being deemed in violation could result in administrative or criminal penalties and damages lawsuits, as well as adverse effects on the Company's reputation. The Company positions compliance as a key management issue and strives to ensure thorough compliance through the development of a code of ethics, its distribution to officers and employees, and education and training.

In production and sales activities overseas, a wide range of risks—including changes in laws, regulations, and tax systems, exchange rate fluctuations, changes in the labor environment, differences in business customs, social disruptions such as terrorism, war, and the spread of infectious diseases, and political and economic factors—may affect operating results. As business expansion in overseas markets, which are expected to continue growing, is one of the Company's strategies, ongoing response to these risks is required.

Fluctuations in exchange rates may affect operating results and financial position in relation to foreign currency-denominated import and export transactions and the yen conversion of overseas subsidiaries' financial statements. Even if there is no change in performance on a local currency basis, translation differences can affect consolidated results. The Company works to minimize this risk through the use of hedging instruments such as forward exchange contracts.

If an accident or complaint arises due to product quality issues, this could result in significant costs such as product recalls, as well as damage to trust, which may affect operating results. There is also a risk that logistics disruptions caused by natural disasters, terrorism, or the spread of infectious diseases could result in lost sales opportunities. The Company works to reduce this risk through strict quality control and quality assurance systems, maintaining appropriate product inventory, and regular review of business continuity plans (BCP), including backup production by external parties.

Changes in transaction terms with major customers that are ongoing sales destinations, contract termination, declining demand, or deterioration in a customer's business performance could have a material impact on operating results and financial position. The Company is working to develop new customers in order to establish a business foundation that is not dependent on the trends of specific customers.

With respect to owned assets, impairment losses may arise due to a significant decline in profitability caused by a marked deterioration in the business environment or a decline in market prices, which could affect operating results and financial position. In particular, given the increase in assets accompanying overseas business expansion, there are concerns about the impact of changes in the economic environment. Disclosure of specific countermeasures in the securities report is limited.