TAKASAGO INTERNATIONAL CORPORATION

If prices of raw materials, including natural raw materials, surge due to global economic conditions, supply-demand imbalances, natural disasters, exchange rate fluctuations, inflation, or other factors, business performance may deteriorate. There is also a risk of profit shortfall due to supply chain disruption caused by geopolitical risk or accidents at suppliers, or a sharp decline in market prices of medium- to long-term procurement materials. As countermeasures, the Group is promoting procurement diversification through global sourcing and multiple supplier arrangements, reviewing contracts with suppliers, and advancing responsible procurement activities through participation in TfS.

Failure to respond to tightening environmental regulations, imposition of environmental taxes, and increasingly sophisticated environmental requirements from customers in the countries where the Group operates may affect reputation and business performance. There is also a risk that an increase in abnormal weather and natural disasters caused by global warming could lead to supply constraints and price increases for natural raw materials. The Group is promoting endorsement of TCFD, setting greenhouse gas reduction targets in line with SBTi standards, and developing environmentally adaptive products centered on green chemistry.

Significant changes in laws, regulations, and tax systems in the countries where the Group operates, political and economic turmoil such as terrorism and war, and social disruption such as the spread of infectious diseases may affect local production and sales activities. As the ratio of overseas sales increases, the scope of impact of such risks becomes wider. The Group addresses this through continuous information gathering on political and economic conditions and regulatory trends in each country.

If demand for products declines due to a global economic downturn or reduced demand, this could lead to a decrease in net sales, and consumer restraint in spending on discretionary items could also affect business performance. There is also a risk that exchange rate fluctuations could affect the consolidated financial statements after conversion into yen, as the ratio of overseas sales in consolidated net sales increases. The Group addresses this through risk diversification via expansion of its business portfolio, strengthening of key business foundations in each country, and formulation of profit plans that incorporate exchange rate fluctuations.

In technological innovation areas such as biotechnology, green chemistry, and AI, delays in research and development, failure to achieve results, or divergence from market needs may reduce competitive advantage and affect medium- to long-term growth. There is also a risk that the market share of existing products could shrink due to the entry of competitors amid obsolescence of technology and intellectual property. The Group addresses this through utilization of proprietary catalyst technology and cutting-edge biotechnology, open innovation with external research institutions, and execution of intellectual property strategy.

Industry restructuring through acquisitions by competitors may reduce market share and competitive advantage, and competition to obtain core supplier certification from globally operating customers may also affect business performance. There is also a risk that market share of existing products could decline due to the entry of competitors. The Group addresses this through advancing its strategy by developing value-added products leveraging its uniqueness, providing differentiated services, and optimally allocating global resources.

If serious quality claims or concerns over product safety arise, this could lead to financial losses from recalls and a decline in trust from customers and stakeholders. There is also a risk that product supply could become impossible due to recalls or suspension of sales if quality issues in final products arise from deficiencies in manufacturing processes at raw material suppliers, in-house plants, or contract manufacturers. The Group addresses this through quality audits at domestic and overseas manufacturing sites based on its quality policy, advancement of process safety management, ensuring data integrity, and conducting regular audits of contract manufacturers.

Pandemics, natural disasters, fires or accidents at the Group's own business sites may disrupt business activities, and product supply could become impossible due to suspension of production and sales. There is also a risk that accidents at raw material suppliers could reduce production and cause raw material price increases, affecting business performance. The Group is working to mitigate risk through regular safety audits, establishment of a crisis management system, development of BCPs at domestic and overseas sites, and promotion of multiple supplier procurement.

If system failures occur due to increasingly sophisticated cyberattacks such as unauthorized access, computer virus infection, or ransomware, business disruption could have a severe impact on business performance and financial condition. There is also a risk of declining social trust due to leaks of corporate and personal information, and delays in production and sales due to insufficient proficiency when introducing new systems. The Group addresses this through the introduction of state-of-the-art intrusion detection systems, continuous employee training, targeted phishing email drills, and enhanced preparation when introducing new systems.

With a globally diverse workforce, failure to organically utilize such human resources, or failure to secure personnel with the qualities and capabilities necessary for regional business operations, may constrain business growth and reduce competitiveness. Although the Group promotes diversity management, human resource management on a global scale involves complexity. The Group addresses this through developing global talent by actively transferring personnel between locations in different countries, promoting appropriate placement of personnel at a global level, and securing human resources by leveraging its identity as a flavors and fragrances company originating from Japan and Asia.