MEC COMPANY LTD.

The Group's core business is the electronic substrate/components and materials business, and given the large proportion of sales directed toward electronic substrates, its performance is significantly influenced by production trends in the electronic substrate industry. If production of electronic substrates declines, it may have a direct adverse effect on the Group's sales and profits. The high degree of dependence on a specific industry constitutes a risk factor that undermines the stability of earnings.

The Company actively engages in new product development, centered on chemicals for electronic substrate manufacturing, and continues to invest in research and development at a target level of approximately 10% of consolidated net sales. If the Company fails to respond appropriately to technological innovation or misjudges market needs, this could lead to a decline in product sales, and the burden of research and development expenses could put pressure on earnings. The risk that research and development outcomes do not translate into sufficient profitability is a persistent challenge for the Company, which maintains a high level of R&D investment ratio.

The Group covers major electronic substrate markets around the world through a structure that includes six consolidated subsidiaries, and in recent years the importance of its business in China has been increasing. If various country risks in China related to politics, economics, regulations, and other factors materialize, this could have a material impact on the Group's business performance. The growing dependence on the China business is expanding exposure to geopolitical risk.

The Group places emphasis on strengthening its research and development structure and enhancing sales capabilities, including overseas expansion, and is engaged in "strategic human resource management" encompassing the recruitment, training, placement, and rotation of excellent personnel. However, if the Company is unable to sufficiently secure and develop the human resources it seeks, this could affect earnings through a decline in research and development capabilities or overseas sales capabilities. In particular, a shortage of highly specialized research and development personnel or personnel capable of handling overseas operations is a risk directly linked to maintaining competitiveness.

The Group conducts global business operations in which overseas sales account for more than half of total sales, and fluctuations in foreign exchange rates have a direct impact on earnings. Generally, yen appreciation is a factor leading to lower sales and profits, as it reduces the yen-converted value of overseas sales during periods of yen strength, thereby pushing down business performance. Given the structure in which the overseas sales ratio exceeds half of total sales, foreign exchange risk is one of the major factors behind fluctuations in business performance.

The raw materials for the Company's main products, chemicals for manufacturing electronic substrates and components, are primarily inorganic materials, but some crude oil-based and copper-based materials are also used, and the polyethylene containers used for transporting products are also affected by crude oil prices. If raw material prices surge or shortages occur due to increased global demand, product costs may rise and put pressure on earnings. The Company implements cost reduction measures such as bulk purchasing and reviewing raw materials, but it is difficult to completely avoid the impact of market fluctuations.

The Company has established a dedicated intellectual property department internally and acquires and manages rights in each country, but it cannot completely rule out the possibility of unexpected claims of intellectual property rights infringement from third parties. If an intellectual property dispute occurs, this could affect the Group's earnings through litigation costs, damages, and other expenses. As the Company expands its business globally, differences in intellectual property systems among countries and the actions of competitors are heightening potential risks.

The Group holds customer information, personal information, and confidential technical information, and has implemented safety measures such as establishing internal regulations, employee training, and cyberattack countermeasures. However, if an information leakage incident occurs, whether intentional or accidental, it could affect business performance through loss of trust and legal liability. The risks of unauthorized access, tampering, or leakage due to computer virus infection or cyberattacks are increasing along with the progress of digitalization.

The Group's chemicals for manufacturing electronic substrates and components use a variety of chemical substances, which are subject to legal regulations aimed at protecting human health and the environment in Japan and other countries around the world. If the Company fails to respond appropriately to regulatory changes or if product development does not proceed as planned, this could affect earnings through sales restrictions or the incurrence of additional costs. As the Company expands its business globally, it is essential to continuously monitor and respond to regulatory trends in each country.

If production activities are disrupted by natural disasters such as earthquakes or floods, accidents, or the spread of infectious diseases, this could affect the Group's earnings and financial position. There is also a risk of indirect impact through a decline in demand for electronic substrates and components if supply chain disruptions reduce the production volume of final products such as electronic devices. The Group seeks to minimize such impacts by dispersing production sites and formulating a BCP (Business Continuity Plan).