CHEMIPRO KASEI KAISHA, LTD.

In OEM sales within the Chemicals Business, the company is highly dependent on its major customer BASF, and changes in BASF's sales strategy could materially affect the company's business performance. The company is pursuing sales activities aimed at establishing second and third pillar businesses, expanding new products and enhancing its Contract Manufacturing Products lineup.

Main raw materials are procured through multiple domestic sources and imports, but prices may fluctuate significantly due to international crude oil prices and economic conditions in resource-exporting countries. Sharp fluctuations in raw material prices directly affect cost competitiveness and could adversely impact business performance. While the company strives to strengthen cost competitiveness, there are limits to passing costs on to selling prices under global competition.

Due to a business structure involving foreign currency-denominated transactions, fluctuations in exchange rates may affect business performance through both raw material prices and selling prices. As countermeasures, the company implements hedging through forward exchange contracts and actively enters into yen-denominated transaction agreements.

Organic industrial chemicals are subject to domestic regulations such as the Fire Service Act, the Act on the Poisonous and Deleterious Substances Control, the High Pressure Gas Safety Act, and the Chemical Substances Control Law, as well as international environmental regulations such as the Stockholm Convention and REACH regulations. If these laws and regulations are amended, it could affect the manufacturing and sale of products, and the relevant departments have established a system to continuously monitor the latest regulatory developments.

The company is nurturing organic EL and other Electronic Materials-related businesses as future growth businesses and holds a substantial number of related patents; however, as this is a cutting-edge field, competitors are also actively engaged in developing new products. While the company is strengthening collaboration with government and academia to capture sales share as the market expands, there is a risk that intensifying competition could prevent it from securing sufficient profitability.

The Fukushima Plant, which handles organic EL products, has limited supply volume and has not achieved improved operating efficiency, resulting in continuous negative income from operating activities. Although the recoverable amount (net realizable value) appraised by a real estate appraiser currently exceeds the book value, there is a risk that a certain scale of impairment loss may need to be recognized in the future. As countermeasures, the company is promoting improved utilization rates through active acquisition of contract manufacturing projects and strengthening new product lineups through government-academia collaboration.

The recoverability of deferred tax assets is assessed based on the scheduling of temporary differences and the sufficiency of taxable income; however, if scheduling becomes impossible or if it is determined that sufficient taxable income cannot be secured due to a decline in profitability, tax expenses may be recognized through the write-down of deferred tax assets, which could adversely affect business performance.

The Chemicals Business tends to be affected with a delay following changes in the market for industrial products such as automobiles and home appliances, and a sudden decline in demand could occur if drastic environmental changes arise, such as regulations on additives to organic industrial products or shifts to new additive substances. In the Home Industry Business as well, there is a risk that climate change and sudden shifts in market conditions could affect business performance, and the company is working on developing environmentally friendly products (such as water-based Wood Preservative Chemicals).

Since many of the company's products are classified as organic industrial chemicals, there is an environmental impact risk associated with business activities. Although the company has introduced an environmental management system and strives to evaluate and reduce environmental risks, if issues such as environmental pollution occur, business performance and financial condition could be affected.

The main production sites for the core Chemicals Business are concentrated along the Seto Inland Sea coast in Hyogo Prefecture, and if a large-scale disaster such as a Nankai Trough earthquake or severe typhoon occurs, product damage, production equipment deterioration, logistics network paralysis, and supply chain disruption could have a material impact on business performance and financial condition. Although consideration is given to diversifying manufacturing sites, concentration risk remains.