ADEKA CORPORATION

The conflict between Iran and the U.S./Israel has affected production and sales at the UAE subsidiary, and given the risk of a Taiwan contingency, the Group, which has multiple production and sales bases in Taiwan, faces various risks including employee safety, supply chain disruption, and cyber attacks. U.S. tariff policy may also adversely affect market trends in the industries in which the Group operates. The Risk Management Committee leads efforts to gather information on legal and policy developments in various countries and conduct business impact analyses.

Purchase prices of key raw materials such as petrochemical feedstocks, fats and oils, and electricity are affected by domestic and overseas market conditions and exchange rate fluctuations, and a sharp rise in crude oil and naphtha prices due to geopolitical risk in oil-producing countries, or price volatility in palm oil and soybean oil due to abnormal weather, could affect business performance. There is also a risk that stable procurement could become difficult due to the ongoing consolidation of domestic ethylene facilities, and the Group is addressing this by considering diversification of suppliers.

As the consolidated Group operates businesses around the world, the yen-converted value of local currency-denominated assets and profit/loss is affected by fluctuations in the yen conversion rate used when preparing the consolidated financial statements. Similar risks exist for foreign currency-denominated transactions such as imports and exports, and significant exchange rate fluctuations could adversely affect business performance. The Group works to reduce foreign exchange risk by monitoring trends in major currencies and utilizing hedging instruments.

In related industries, technological progress and change are significant, and the speed at which competitors, including those in emerging countries, catch up is accelerating, creating a risk that the Company's products and technologies could become obsolete or that intensified price competition could cause product prices to fall more than expected. In joint research with customers, if a partner company's final product becomes disadvantaged in the market, demand for the Company's products may fail to materialize. In addition, if a competitor asserts infringement of intellectual property rights, there is a risk of sales suspension, damages, and litigation costs.

Chemical substance regulations, including the EU REACH Regulation and PFAS regulations, are being strengthened and revised around the world, and significant regulatory changes could restrict the consolidated Group's activities and increase costs. Strengthening of security trade-related regulations amid U.S.-China tensions (U.S. export controls and China's Export Control Law) could have direct or indirect effects on sales of the consolidated Group's products, which supplies industrial intermediate materials to a wide range of industries in both countries. The Group addresses this through monitoring by the Compliance Promotion Committee and the execution of annual compliance activity plans by each department.

If regulations are implemented due to reconsideration of single-use plastic applications or a proposed international treaty, this could affect the consolidated Group's business, which includes plastic-related products. On the other hand, global plastic demand is expected to continue increasing, and the impact of regulation is expected to be limited to certain applications. The Group is responding through efforts toward a circular economy and by supplying products that promote longer product life and higher functionality for plastics.

Although the Group has implemented quality management systems such as ISO9001 and FSSC22000, as well as measures to prevent falsification of product inspection values, it cannot guarantee the elimination of defects in all products or zero occurrence of recalls. While the Group carries product liability insurance, this may not fully cover all damages ultimately incurred, which could affect business performance and financial condition. The Group manages quality and safety through the provision of safety information via SDS and Yellow Cards for chemical products, and product specification sheets for food products, along with the operation of traceability systems.

If trouble such as an explosion, fire, natural disaster, terrorism, spread of infectious disease, or logistics accident occurs, this could result in factory shutdowns or reduced operating rates, leading to supply shortages or difficulties, as well as impacts on product quality, the environment, and the safety of local residents and employees. Factory trouble at raw material suppliers or OEM partners in the supply chain also poses a risk of disrupting product supply. The Group addresses this through the introduction of management systems based on international standards such as ISO45001, ISO14001, and ISO22301, and the establishment and operation of a Business Continuity Management System (BCMS).

If a cyber attack or information leak targeting trade secrets such as technical information or personal data occurs, this could result in administrative penalties or sanctions, economic losses from damage claims, and a decline in competitiveness or reputation, thereby affecting business performance. This is also related to the risk of a Taiwan contingency, raising concerns about information leakage and business disruption due to cyber attacks. The Information Management Subcommittee under the Compliance Promotion Committee implements measures against hacking, viruses, and cyber attacks, as well as employee training, based on the information security policy.

If unexpected failures occur in connection with software updates or improvements, or if data center systems are shut down due to disasters, this could affect the consolidated Group's operations. Although measures such as remote data replication and the establishment of backup lines have been implemented, system trouble caused by unforeseen events cannot be completely eliminated. The Group is working to strengthen its system maintenance framework in parallel with promoting the digitalization of operations.