TOHO CHEMICAL INDUSTRY COMPANY, LIMITED

The Group uses petrochemical products, fats and oils, and Chemical Products as main raw materials, and is therefore strongly affected by crude oil price fluctuations. If price pass-through to products becomes difficult or delayed during periods of raw material price surges, cost of sales will increase and profits will decline. The Group addresses this through procurement from multiple suppliers, securing safety stock, and research into in-house production of some raw materials, but the risk cannot be entirely eliminated.

Most of the domestic production capacity is concentrated in the three Kanto prefectures of Chiba, Kanagawa, and Ibaraki, creating a risk that multiple plants could be shut down simultaneously in the event of a widespread disaster. Since some products can only be manufactured at a single plant with dedicated equipment, a production halt due to a major earthquake or similar event could severely disrupt supply to customers. The Group is proceeding with seismic reinforcement and tsunami countermeasure construction, as well as establishing production capability across multiple plants, but it remains difficult to cover all products.

In February 2023, the company suffered unauthorized access by a third party, and it was confirmed that some of the data held by the company was leaked externally, representing an instance in which the risk of intellectual property leakage materialized. Prolonged system outages or information leaks could have multifaceted impacts, including business suspension, loss of social credibility, liability for damages, and reduced competitiveness. The company is currently working to strengthen information security and continues to monitor for secondary damage.

As of the end of March 2026, interest-bearing debt, including borrowings, bonds, and lease obligations, totaled ¥28,583 million, and a rise in market interest rates would increase interest expense, affecting business results. The Group seeks to mitigate this risk through the use of interest rate swaps, but a complete hedge is difficult to achieve. In addition, if fluctuations in financial markets or changes in creditworthiness make it difficult to raise necessary funds, this could materially affect the Group's cash flow.

Toho Chemical (Shanghai) Co., Ltd. recorded operating losses or only minimal profits from fiscal 2021 through fiscal 2023 due to production suspension orders from the Chinese State Council, the Shanghai lockdown, and construction work to comply with safety regulations. In fiscal 2024 and fiscal 2025, the two Shanghai-based companies together recorded operating profit of approximately ¥400 million for two consecutive fiscal years, but recovering the investment in the pressurized reaction equipment expansion completed at the end of 2025 remains a challenge, and there is a risk that impairment losses on fixed assets could arise if business performance deteriorates or asset fair values decline.

The Group has three consolidated subsidiaries in China and sells products primarily to China as well as to other parts of Asia, Europe, and the United States, exposing it to risks such as deterioration of the political and economic situation, tightening of environmental and safety regulations, trade disruption caused by the fragmentation of the global economy into blocs, and deterioration of Japan-China relations due to escalating tensions over Taiwan. If these risks materialize, they could adversely affect the production and sales activities of the Chinese subsidiaries, leading to decreased sales and increased costs. In particular, tightening regulations within China and geopolitical risk are currently cited as specific areas of concern.

There is a risk that competitiveness could decline due to intensifying price competition from inflows of low-priced products from overseas, the rise of companies in emerging economies, rapid improvement in the technological capabilities of competitors, and in-house production by customer chemical manufacturers. Prolonged development periods for new technologies and products, as well as delays in productivity improvement, could also lead to a relative decline in competitiveness, potentially resulting in decreased sales and lower profit margins. The Group strives to maintain its competitive advantage through strengthening proprietary technology, product differentiation, and stricter quality control.

The full-scale introduction of greenhouse gas emissions trading and the application of carbon taxes are expected to directly increase costs, in addition to cost increases resulting from rising prices of raw fuels and electricity and expanded use of renewable energy and biomass raw materials. If extreme changes occur in customer needs, such as a shift away from fossil-fuel-derived products, this could have a significant negative impact on existing businesses. The Group has set GHG emissions reduction targets and is working on energy and resource conservation measures, while also focusing on developing products with reduced environmental impact.

If an accident such as a fire, explosion, or chemical substance leak occurs at a plant handling hazardous materials or chemical products, it could result in loss of social credibility, costs for compensation and other responses, and opportunity losses from production suspension, simultaneously causing decreased sales and increased costs. The Group works to prevent such incidents through regular inspections of all manufacturing facilities, thorough safety education, and enhancement of safety devices and firefighting equipment, but the risk cannot be reduced to zero.

The Group regards human resource strategy as one of its most critical issues, and if it is unable to secure sufficient appropriate personnel, this could constrain business execution and lead to opportunity losses and decreased sales. The Group promotes the active recruitment and development of diverse talent and the effective use of human resources through labor-saving in production processes, but it may become difficult to secure the necessary personnel due to intensifying competition in the labor market and other factors.