OAT Agrio Co., Ltd.

The domestic agricultural market continues to show a gradual decline due to population decrease, falling agricultural product sale prices, aging of agricultural workers, and a shortage of successors, and this uncertain environment is expected to continue going forward. Changes in government agricultural policy direction (such as the Green Food System Strategy) have set KPIs including a 50% reduction in chemical pesticide usage and a 30% reduction in chemical fertilizer usage, which may directly affect demand for the Company's mainstay agrochemical and fertilizer products. The Company is addressing this through "Green Products," the "Biostimulant Business," "Smart Agriculture," and "Global Product Expansion" as growth drivers of its new medium-term management plan (2024-2026).

Agrochemicals and fertilizers are subject to legal regulations throughout the entire process of raw material procurement, manufacturing, export, sale, and use, and there is a risk that changes in laws and regulations could make the sale or use of existing products or products under development impossible, or result in additional testing and research costs. Manufacturing and storage locations also require legal registration, and changes in laws and regulations could hinder operations. The Company continuously monitors trends in relevant laws and regulations and strives to mitigate this risk through improvement of existing products, development of new products, and securing alternative business partners.

There is a risk that sale prices may decline due to the relaxation of restrictions on new market entry by major overseas companies or the entry of competing products into the market. This risk arises in conjunction with changes in legal regulations and directly affects the profitability of the Group. The Company is working to maintain its competitiveness through the improvement and enhancement of products and the development of new products via research activities.

The Group holds substantial fixed assets due to its active acquisition of external management resources for business expansion, and if a divergence from the business plan occurs due to economic fluctuations, weather variations, global disasters, etc., the expected cash flows may not be generated, giving rise to a risk of impairment of fixed assets. In addition, with respect to shares of subsidiaries with no market price, if the substantial value declines significantly due to deterioration in financial condition or other factors, impairment processing may become necessary, which could affect the results in the non-consolidated financial statements. As of the end of the current consolidated fiscal year, the Company does not recognize that this risk has materialized, but it is addressing the matter through regular monitoring and strengthening of its supervisory functions.

Geopolitical risks arising from the situation in Ukraine and other factors have raised concerns about surging energy and raw material prices, and if prices rise more sharply than expected or remain elevated over the long term, this could affect the Group's business results. In addition, the prolonged armed conflict in the Middle East creates a risk of closure of the Strait of Hormuz, and delays in maritime transport or rising transport costs could affect business results. The Company is addressing this through review of procurement sources and thorough cost reduction efforts, but complete avoidance remains difficult.

The Group conducts part of its import and export transactions denominated in US dollars, euros, and Indian rupees, and its business results may be affected by exchange rate fluctuations. The Company implements risk avoidance measures such as maintaining a balance between foreign currency-denominated exports and imports and using forward exchange contracts, but complete avoidance or reduction of this risk is not guaranteed. On the other hand, because the Group has many overseas consolidated subsidiaries, a weaker yen is said to have a favorable effect on consolidated business results, while a stronger yen has the opposite structural effect.

The Group holds numerous overseas consolidated subsidiaries, and the process of converting each subsidiary's financial statements into yen for the preparation of consolidated financial statements is affected by exchange rates. In addition, if the substantial value of subsidiary shares declines significantly due to deterioration in financial condition or other factors in the valuation of subsidiary shares, impairment processing may become necessary, which could affect the results in the non-consolidated financial statements. The Company conducts management aimed at improving business results through synergies achieved in cooperation with Group companies, and addresses this risk through regular monitoring and strengthening of its supervisory functions.