NICCA CHEMICAL CO.,LTD.

The overseas sales ratio to consolidated net sales is high at approximately 50%, and with 14 overseas offices, sudden fluctuations in exchange rates may significantly affect business performance and financial position. The Group seeks to minimize the impact by balancing foreign currency-denominated receivables and payables and shortening collection cycles, but responding to sudden fluctuations may be difficult in some cases. In addition, business operations in multiple emerging countries also entail country risk, such as sudden political or economic changes, conflicts, and terrorism.

Raw materials used in production consist largely of petroleum-related and naturally derived raw materials, and market prices fluctuate due to supply-demand balance, weather conditions, exchange rate movements, and other factors. If heightened geopolitical risk in regions such as the Middle East disrupts major maritime shipping routes, this could lead to sharp increases in petroleum-related raw material prices or procurement disruptions. The Group is responding through strengthening relationships with suppliers, diversifying procurement sources, and expanding high-value-added products, but a sharp rise in market prices may affect business performance and financial position.

The sophistication and increasing complexity of cyberattacks, including ransomware, have heightened the risk of leakage of confidential information and personal data. If core systems or operational systems are damaged by unauthorized access or other incidents, this could disrupt business activities such as order receipt, production, and shipment. The Group has established information security policies and implemented system-level countermeasures and employee training, but damage compensation claims, reputational decline, and recovery costs arising from such incidents could significantly affect business performance and financial position.

The Group is affected by market trends and changes in consumer demand across diverse industries, including fashion and apparel, automotive, beauty salons, electronics and semiconductors, and chemicals and cosmetics. As the Group sells products not only in Japan but also across Asian countries, North America, and other regions, the economic conditions of each country and region significantly affect product sales. A decline in demand in related industries, deterioration in economic conditions, or structural changes in society and industry could significantly affect business performance and financial position.

The Group is subject to numerous laws and regulations in Japan and overseas relating to chemical substance management, product manufacturing, transportation, labor, and transactions, and regulatory tightening, particularly in the environmental area, is progressing globally. If additional or revised regulations are introduced overseas, or if key permits are revoked, business activities could be restricted, significantly affecting business performance and financial position. The Group promotes improvement activities through the operation of international standards such as ISO9001 and ISO22716, but there is a risk that responses may not keep pace with changes in the regulatory environment.

The Group is focusing on creating new businesses as a third pillar following the Textile Chemicals and Cosmetics businesses, and continues to invest management resources over the medium to long term. If progress in research and development or new business creation deviates significantly from plans, or if expected results are not achieved, it may become difficult to recover the invested management resources. In addition, failure to appropriately respond to rapid technological innovation in digital technology fields such as AI and DX could lead to a decline in competitiveness and loss of social trust.

To efficiently raise business funds, the Group has entered into syndicated loan agreements with multiple financial institutions, and these agreements include certain financial covenants. If the Group breaches these financial covenants, the relevant borrowings could become subject to lump-sum repayment and contract termination, which may affect cash flow. The Group adopts a fund-raising policy that takes into account the weighted average cost of capital and D/E ratio, but there is also a risk that unexpected interest rate fluctuations or turmoil in financial markets could affect funding costs.

The Group applies accounting standards for impairment of fixed assets, and impairment losses may arise due to a decline in profitability caused by a significant deterioration in the business environment or a decline in market prices. As the Group operates numerous production facilities in Japan and overseas and holds a large scale of fixed assets, the impact on financial position in the event of impairment is significant. No specific countermeasures are described, and continuous monitoring in response to changes in the business environment is required.

Natural disasters such as earthquakes, strong winds, and flooding, as well as accidents such as fires, may cause damage to production facilities, disruption of the supply chain, and suspension of product shipments. As the Group operates numerous production facilities in Japan and overseas, a major disaster could result in temporary or prolonged suspension of business activities, significantly affecting business performance and financial position. The Group is strengthening accident prevention measures, such as safety and health committee activities, and preparedness for natural disasters, but there are limits to responding to large-scale disasters that exceed expectations.

The Group has formulated a 'Medium- to Long-Term Group Growth Scenario' that sets 'ROE of 10% or higher' as a key target by 2035 and introduces 'PBR' and 'DOE' as new management target indicators. This scenario is based on the market environment, exchange rates, raw material price outlook, and other factors at the time of formulation, and there is a risk that initiatives under the basic policy may not proceed as planned due to uncertain factors such as changes in economic conditions, as well as a risk of failing to achieve numerical targets. If the targets are not achieved, this could result in a decline in evaluation from capital markets and a negative impact on the share price.