ARAKAWA CHEMICAL INDUSTRIES, LTD.

The Company Group operates businesses in Japan, Asia, the Americas, Europe, and other regions, and is affected by the political and economic conditions and policies of each region. A decline in demand due to economic downturns in major customer industries such as paper manufacturing, printing inks, coatings, adhesives, and electronics could affect business results. As countermeasures, the Group is promoting business turnover to disperse risks associated with specific political trends and building a revenue structure less susceptible to demand fluctuations.

The Company Group is subject to various licenses, permits, and regulations both in Japan and overseas, and business activities could be restricted by major changes or strengthening of legal regulations such as the introduction of carbon taxes, or by unexpected changes in laws in overseas regions where the Group operates. Increased litigation and dispute costs related to environmental issues, product liability, and intellectual property infringement could also affect business results. The Risk and Compliance Committee, a subordinate organization of the Board of Directors, is developing and building a system to prevent risks in advance and to prevent damage from spreading when risks materialize.

If large-scale natural disasters caused by climate change, fires, accidents, or infectious disease pandemics occur at domestic and overseas production sites, this could adversely affect business results due to the suspension of production activities across the entire supply chain. As countermeasures, in addition to regular inspections of manufacturing equipment, employee education and training, and strengthening disaster prevention measures, the Group has formulated a BCP (Business Continuity Plan) and conducts regular drills. As infectious disease countermeasures, the Group implements telework, staggered work hours, use of web conferencing, and pre-entry checks at production sites as necessary.

While the Company Group is highly dependent on China, the largest producing country, for procurement of gum rosin, a major raw material, domestic production volume in China is decreasing year by year, and fluctuations in the supply-demand balance could lead to price surges that affect business results. There is also a risk that petrochemical products could see price surges or supply instability due to global environmental and safety regulations and heightened geopolitical risks. As countermeasures, the Group is reviewing selling prices and diversifying the procurement regions for major raw materials.

With business operations in Asia, the Americas, Europe, and other regions, fluctuations in foreign exchange rates in foreign currency-denominated transactions could affect business results. In addition, exchange rate fluctuations when translating the financial statements of overseas consolidated subsidiaries into yen could affect consolidated business results. As a countermeasure, the Group is minimizing risk by promoting measures to match the currencies of income and expenses.

If the market value of assets declines significantly, or if the profitability of business assets deteriorates significantly with no prospect of recovery, the application of impairment accounting could result in impairment losses on fixed assets, affecting business results. As a countermeasure, the Group accurately grasps the profitability of each business, and when signs of deteriorating profitability are observed, promptly takes measures to improve business profitability.

In business operations in Asia, the Americas, Europe, and other regions, there are latent risks such as deterioration of political and economic conditions, deterioration of public security, unexpected legal regulations, war, terrorism, and infectious diseases in the regions where the Group operates. If these events materialize, business activities in the affected region could be disrupted, affecting business results. As countermeasures, the Group is working to secure and develop excellent local talent, and to build a system for obtaining accurate information promptly and responding appropriately.

The Company Group holds and manages confidential information such as customer information, personal information, and technical information, and if such information is leaked or falsified due to unauthorized access by third parties or computer virus infection, this could affect business results. As countermeasures, in addition to establishing regulations and information infrastructure, the Group conducts training and drills related to preventing information leaks, striving to strengthen information security.