DKS Co.Ltd.

The Group primarily uses raw materials derived from petrochemical products, and sharp increases in crude oil and naphtha prices may lead to higher prices for major raw materials, potentially adversely affecting business results and financial condition. There is also a risk that prices may fluctuate sharply due to geopolitical factors such as the situation in the Middle East. Although the Group works to reduce production costs and correct selling prices in cooperation with distributors, suppliers, and customers, complete avoidance of this risk is difficult.

The Group operates overseas production and sales bases mainly in Asia, including China, and translates the financial statements of overseas consolidated subsidiaries into yen using the fiscal year-end exchange rate and the average exchange rate for the period. Significant fluctuations in exchange rates may therefore adversely affect business results and financial condition. Although the Group takes risk mitigation measures such as forward exchange contracts for foreign currency-denominated transactions, it may not be able to fully respond to large fluctuations.

Improvements in the technological capabilities and production capacity of competitors may lead to replacement with lower-priced products, potentially adversely affecting business results and financial condition. The Group promotes differentiation strategies through closer relationships with customers, solution proposals, and product customization, but maintaining and enhancing competitive advantage remains an ongoing challenge.

Geopolitical risk has increased significantly due to the situation in Russia and Ukraine, the situation in the Middle East, and trends in U.S. protectionist policies, among other factors. If this leads to soaring energy and raw material prices or disruptions in the supply chain, it may adversely affect business results and financial condition. The main concerns are the destabilization of political and social conditions and deterioration of the business environment due to escalating diplomatic tensions or conflicts.

The Group holds customer information, personal information, and confidential information in electronic form, and if information leakage or tampering occurs due to cyberattacks, unauthorized access, or computer virus infection, it may adversely affect business results and financial condition. The Group has established information security policies, countermeasure standards, and implementation procedures, and takes measures through the timely optimization of its infrastructure, but must continue to respond to increasingly sophisticated threats.

The introduction of carbon pricing, carbon taxes, and similar measures may affect business results and financial condition. In March 2022, the Group announced its support for TCFD and is advancing disclosure of the business impact of climate change through scenario analysis, while also promoting business activities that consider the global environment through Responsible Care activities.

Strengthening of laws and regulations or stricter interpretation of laws by authorities may subject the Group's business to regulation, and increased costs to ensure regulatory compliance may adversely affect business results and financial condition. Given the nature of its business handling chemical products, the Group inherently faces risks in which changes to environmental, safety, and chemical substance regulations, among others, directly affect business activities.

Due to their specialized nature, some raw materials used by the Group are sourced from a limited number of suppliers, and substitutes are difficult to find for some of them. If natural disasters or accidents occur at suppliers, or if international logistics stagnate or supply networks are disrupted due to heightened geopolitical risk, stable procurement may become difficult, which could adversely affect business results and financial condition. The Group continuously implements countermeasures such as reviewing contract terms, considering alternative products, and diversifying suppliers.

For some products, there are specific major customers, and changes in transaction terms, contract termination, decline in product demand, or deterioration in the business condition of a major customer may adversely affect business results and financial condition. The Group continuously promotes efforts to develop new customers and establish a business foundation that is less susceptible to the trends of specific major customers.

Regarding fixed assets such as manufacturing equipment, impairment losses may arise due to declining profitability or decreases in asset value resulting from changes in the business environment, which may adversely affect business results and financial condition. The degree of impact as assessed in the Annual Securities Report is rated as "small to medium," and the financial impact is considered relatively limited compared to other risks, but the likelihood of this risk materializing is judged to be high.