SAKATA INX CORPORATION

The raw materials for the Company's key products, printing inks, are highly dependent on petrochemical products, and abnormal fluctuations in crude oil prices and exchange rates directly affect business performance. The Company recognizes risks such as rising raw material and fuel prices stemming from Russia's invasion of Ukraine, tightening environmental regulations in China, and increased transportation costs due to detours around the Suez Canal caused by the Red Sea crisis, all of which push up procurement costs. As countermeasures, the Company is promoting the expansion of supply sources, conclusion of long-term contracts, multiple sourcing, and global procurement, as well as advancing interchangeability among local subsidiaries.

With overseas sales accounting for over 70% of consolidated net sales and operations spanning more than 20 countries and regions, unforeseen risks exist including political instability (including wars, civil unrest, conflicts, and terrorism), deteriorating economic conditions, natural disasters, spread of infectious diseases, differences in business customs, labor relations, and culture, and government regulations. Normal risks also include rising raw material costs, labor costs, and logistics costs due to inflation, as well as intensifying price competition. As countermeasures, the Company avoids establishing operations in politically unstable countries and instead handles such markets through exports, while also establishing a BCP framework through production and sales cooperation among its more than 20 sites worldwide.

If business establishments or manufacturing sites are damaged by large-scale earthquakes, natural disasters, accidents, or the spread of infectious diseases, business activities may be forced to be suspended or significantly scaled down. In addition, there is a risk that supply chain disruptions caused by shortages of electricity and raw materials could restrict production activities, affecting business performance and financial condition. The Company has established a dedicated safety and disaster prevention department and is working to build a global BCP framework.

If technical information, trade secrets, or personal information are compromised due to unauthorized access, malware infection, or ransomware attacks, this could affect business performance and financial condition, as well as damage social credibility and disrupt business continuity. Risks such as leakage of confidential information and infringement of intellectual property rights associated with the use of generative AI, as well as an increase in cyberattacks targeting entire supply chains, have also emerged as new risks. In response, the Company has implemented measures such as introducing zero-trust security, strengthening access controls, conducting targeted attack email training, and promoting acquisition of ISO/IEC 27001 certification.

The Company sells products in more than 60 countries and regions worldwide, and responding to differing legal systems and administrative regulations in each country is a major challenge. Delays in responding to legal regulations could result in fines, sanctions, business suspension orders, and other impacts on business performance and financial condition, as well as hinder future business operations. The Company is strengthening its response through the establishment of a Risk and Compliance Committee, development of competition law and anti-corruption policies, introduction of a global-based internal reporting system, and formulation of a speak-up policy.

The Company positions the risks and opportunities associated with climate change as a top management priority, recognizing that it will have a significant impact on its business. The Company supports the TCFD recommendations and, based on this framework, is analyzing the impact of climate change on its business and considering countermeasures. The Sustainability Committee, chaired by the Representative Director, President and Executive Officer, oversees and strengthens the Company's ESG and sustainability initiatives.

Product quality non-conformance, manufacturing defects, fraud, or falsification could not only reduce customer satisfaction but also lead to legal liabilities such as product recalls, damage claims, and administrative dispositions, potentially affecting business performance and financial condition. In its globally expanding business, responding to overseas quality and environmental regulations is also a challenge. The Company has established a Quality Committee under the Sustainability Committee, and is promoting quality assurance through internal and external quality audits, introduction of automated pass/fail determination, and expansion of the global quality assurance framework.

While the Company actively promotes M&A and investment in startups both domestically and internationally, changes in the business environment or discrepancies from assumptions made at the time of investment decisions may result in the inability to recover part or all of the invested amount, or additional valuation losses and expenses associated with withdrawal. These are explicitly identified as risks that could have a material impact on business performance and financial condition. The Company addresses this through appropriate discussion and decision-making at the Management Council and Board of Directors, prior due diligence, and regular monitoring of business performance after investment.

Due to intensifying competition in the recruitment market caused by declining birthrates, primarily in developed countries, and diversification of working environments, securing the necessary human resources may become difficult. If frequent outflow of talented personnel occurs, this could lead to a decline in the accumulation of organizational know-how and productivity, resulting in a weakening of the management foundation. The Company has implemented measures such as introducing four systems including the internal career recruitment system and career challenge system, relocating its Osaka head office and adopting ABW (Activity Based Working) in 2025, and strengthening global talent acquisition.

If the Company receives a request for injunction or damages due to differing interpretations of rights regarding third-party intellectual property rights, this could have a material impact on business performance due to the suspension of product development, sales, or technology licensing, as well as the occurrence of damages. In addition, leakage of technical information and know-how could lead to the distribution of imitation or similar products by competitors, potentially adversely affecting competitiveness and profitability. The Company addresses this through promoting patent and trademark applications and rights establishment in major countries, and through education to improve intellectual property literacy conducted by the Research Management Department.