Toyo Gosei Co.,Ltd.

The core products of the Photosensitive Materials Business are used as photoresist raw materials in semiconductor and FPD manufacturing processes, and demand for these products can change significantly due to global demand for electronics products and the creation of new markets for communication technologies and electronic control. In addition, restructuring within the fine chemicals industry and the semiconductor/FPD industry may affect business performance. As the Company supplies products globally, it faces the risk that fluctuations in global economic conditions will directly impact its business performance and financial condition.

Solvents for electronic materials in the Chemical Products Business may have a material impact on business performance and financial condition if demand trends in the electronic materials field change, or if customers change product types or specifications due to changes in their manufacturing processes. Since changes in customers' processes are difficult to predict, delayed responses could lead to lost sales opportunities or excess inventory.

There is a risk that manufacturing costs will rise due to fluctuations in the market prices of major raw materials and fuels such as heavy oil. If such increases cannot be absorbed through cost reductions, or if passing on costs to sales prices is difficult due to market conditions, this could have a material impact on business performance. Raw materials for Fragrance Materials products, both natural and petroleum-based, are particularly susceptible to significant price fluctuations caused by weather and market conditions.

In the fiscal year under review, the ratio of direct overseas sales reached 30.4%, reflecting a high degree of dependence on overseas markets in both the Photosensitive Materials Business and the Chemical Products Business. Although the Company takes measures such as risk hedging through forward exchange contracts and settlement in foreign currencies, sharp fluctuations in exchange rates could have a material impact on business performance.

As the Company has relied on bank borrowings for capital expenditure and working capital, its interest-bearing debt ratio remains at a high level. Although the Company has adopted a policy of reducing its borrowing ratio and strengthening its financial position, a sharp change in interest rates could increase financial expenses and have a material impact on business performance.

Based on its BCP, the Company maintains relatively high levels of product inventory compared with other industries, exposing it to both the risk of increased working capital needs from a sudden rise in sales and the risk of excess inventory buildup from a sharp decline in end-market demand. High inventory levels may constrain financial flexibility.

The external environment surrounding chemical substance management is changing daily, creating a risk that substances currently not subject to regulation may become regulated in the future. As countries, including the United States through its TRI system, promote voluntary corporate information disclosure, there is a need to respond to the shift from compliance-based regulation to monitoring- and disclosure-based approaches; delays in responding could affect business activities and social trust.

If facilities, supply networks, or infrastructure are significantly affected by natural disasters such as major earthquakes or typhoons, or by unforeseen accidents, this could have a material impact on business activities and financial condition. Although the Company has taken measures such as obtaining ISO 22301 certification and developing BCP and disaster prevention drills, risks are also recognized regarding disruptions to production, logistics, and sales caused by the global spread of infectious diseases such as COVID-19.

Although the Company implements strict internal quality control standards and customer acceptance quality inspections for its Photosensitive Materials, electronic material applications, and Fragrance Materials products, if a problem caused by the Company's products occurs, this could result in damages claims and have a material impact on business performance. Since these products are used in high-precision manufacturing processes such as semiconductors and FPDs, the impact of quality issues could be far-reaching.

For products based on the Company's differentiated technologies and know-how, there is a risk that the Company may not be able to effectively prevent third parties from infringing its industrial property rights, due to the sale of similar products outside the scope of its rights or the difficulty of proving infringement of manufacturing methods. Conversely, if the Company were to infringe a third party's industrial property rights, it could face claims for damages, injunctions against manufacturing and sales, or royalty payments, which could have a material impact on its business strategy and performance. At present, there are no alleged infringement lawsuits that would have a material impact on management.