SANYO CHEMICAL INDUSTRIES,LTD.

The Nagoya Plant (Tokai City, Aichi Prefecture) and Kinuura Plant (Handa City, Aichi Prefecture), which are core plants, are located in an area designated for intensified earthquake disaster countermeasures related to the Nankai Trough earthquake. In the event of a large-scale disaster, equipment damage, production suspension, and logistics disruption could lead to suspension or delay of product supply and recovery costs, potentially having a material adverse effect on business performance and financial condition. This is positioned as a key company-wide risk, and a cross-organizational project assuming a Nankai Trough earthquake has been launched to promote BCP development, disaster resilience measures, and consideration of alternative production systems, among other initiatives.

The Group utilizes information systems for core operations such as R&D, production, logistics, sales, and accounting. If cyber attacks such as unauthorized external access or ransomware, or core system failures occur, this could result in significant impacts including business suspension, data damage or leakage, recovery costs, compensation, and loss of credibility. In addition to technical measures such as access control, monitoring, detection, and backup, the Group implements operational measures including establishing internal regulations, providing education and training, and building incident response systems.

If a serious accident such as a fire or explosion caused by equipment failure or human error occurs during production activities, it could adversely affect business performance and financial condition through human and physical damage, production suspension, recovery costs, compensation, regulatory response, and loss of credibility. The Group implements focused safety measures particularly for storage facilities for ethylene oxide (EO), a key raw material with high fire and explosion risk, and continues safety and disaster prevention activities such as equipment maintenance, risk assessment, and training.

For certain products, if defects or quality problems occur, the social impact can be significant, including production stoppages at customers' facilities or effects on life and health, and this could lead to use suspension, recalls, replacement, and compensation, as well as loss of credibility, potentially adversely affecting business performance and financial condition. The Group strives to prevent the spread of damage and respond promptly through establishing and operating a quality management system, strengthening change management, early detection of quality fluctuations, and establishing judgment criteria and procedures for serious incidents.

If quality misconduct such as quality fraud or data falsification, accounting or financial fraud, bribery, or violations of competition law (such as cartels) occur, this could lead to product recalls, suspension of business transactions, administrative sanctions, and litigation damages, as well as a prolonged loss of social credibility, potentially having a material adverse effect on business performance and financial condition. The Group strives to prevent misconduct and detect it early through corporate ethics and compliance education, establishing and operating internal whistleblowing systems (including overseas), and strengthening supervision and monitoring.

The majority of major raw materials are derived from crude oil, and raw material prices fluctuate due to market conditions for crude oil and naphtha, geopolitical circumstances, and exchange rate fluctuations. In addition, if procurement of raw materials is disrupted due to accidents at suppliers, production suspensions, logistics disruptions, or changes in laws and regulations, this could adversely affect business performance and financial condition. Both the risk of raw material price fluctuations and the risk of supply disruption exist in combination, requiring responses such as diversification of procurement sources.

The Group operates overseas bases in the United States, Thailand, South Korea, China, Taiwan, and other locations, and fluctuations in exchange rates could adversely affect the earnings and financial condition of overseas businesses. Both yen depreciation and appreciation affect raw material procurement costs and the yen-denominated value of overseas sales, making exchange rate risk management an important issue.

Strengthening of environmental regulations or changes in chemical substance regulations could increase compliance costs and constrain business activities, potentially adversely affecting business performance and financial condition. As a chemical manufacturer, the Group works to comply with environmental laws and regulations and to reduce environmental impact, but continuous response to changes in regulatory trends is necessary.

R&D involves uncertainty, and there is a possibility of development delays or failure to achieve results. Additionally, if development results do not lead to commercialization and monetization due to changes in market needs or technological innovation by competitors, this could adversely affect business performance and financial condition. The Group promotes R&D aimed at responding quickly and accurately to customer needs, but responding to changes in the competitive environment remains an ongoing challenge.

Intensifying competition for talent acquisition, delays in talent development, and the loss of key personnel could hinder business continuity and growth. In particular, if the Group cannot sufficiently secure and develop the talent and skills necessary to promote DX, this could delay business reform and strengthening of competitiveness, potentially adversely affecting business performance and financial condition. Securing and developing diverse talent is positioned as an important issue for sustainable growth, and strengthening investment in human capital, including the development of DX talent, is required.