Showa Chemical Industry Co., Ltd.

There is a risk that manufacturing costs will rise significantly beyond forecasts due to mining regulations on diatomaceous earth and perlite and sharp increases in fuel prices. It is recognized that the potential for this risk to materialize is always present due to heightened environmental awareness, geopolitical risk, and exchange rate fluctuations. In response, the Company is promoting long-term stable procurement plans from various regions around the world and reducing dependence on fossil fuels through the use of wood biomass.

The Company establishes subsidiaries and joint ventures and invests in operating companies. If an investee suffers a business downturn due to sudden market changes or large-scale disasters, the value of assets corresponding to the equity stake may decline. The amount of investment securities (other securities) is ¥2,948 million, and there is concern about the financial impact of declines in market value. In response, the Company conducts due diligence through external specialized institutions and makes investment decisions following thorough discussion at the Board of Directors, as well as divesting from holdings with little strategic significance.

At the end of the consolidated fiscal year, the total amount of interest-bearing debt (excluding lease obligations) was ¥2,282 million, and interest expense was ¥30 million. It is recognized that there is a constant risk of rising interest rates due to the upward trend in domestic policy interest rates and the progress of globalization. Fluctuations in the financial and capital markets could affect business performance and financial condition through insufficient fundraising or increased interest expenses. In response, the Company is considering controlling the total amount of interest-bearing debt based on internal standards and diversifying its fundraising methods.

If core systems suffer severe damage due to cyberattacks, software defects, or communication infrastructure failures, this could disrupt business activities, result in the loss of confidential information, leakage of personal information, and claims for damages. Given the increasing frequency and sophistication of cyberattacks, this is recognized as a continuously present risk. In response, the Company implements enhanced network monitoring, access rights management, data backups, updating of security software, training for officers and employees, and establishment of an incident response system.

Sales in the Filter Aids field account for more than 60% of total sales, and if innovations in filtration technology reduce the competitive advantage of the Company's products, this could have a material impact on business performance. It is recognized that there is a moderate risk of substitution due to the acceleration and cost reduction of solid-liquid separation technology, changes in filter mechanism structures, and other factors. In response, the Company is enhancing the overall competitiveness of Filter Aids while expanding into markets outside the filtration-related products field.

The Company has many transactions with customers dependent on summer demand, such as those in the beer, soft drink, and pool businesses, and changes in consumer behavior due to abnormal weather or natural disasters affect business performance. It is recognized that there is a moderate possibility of this risk materializing due to the normalization of abnormal weather and the trend toward more severe natural disasters. In response, the Company is diversifying its business fields through the expansion of products and services to reduce this risk.

The Company exports to dozens of countries worldwide and has overseas sales and manufacturing bases. If political instability, economic crises, tightened regulations, exchange rate fluctuations, retaliatory tariff measures, infectious diseases, or other events occur, this could lead to a decline in competitiveness, suspension of operations, or business withdrawal. It is recognized that there is a moderate possibility of this risk materializing due to global inflation, geopolitical risk, and the prolongation of trade issues. In response, the Company prepares for contingencies through information gathering within the Group and the use of external consultants.

The Company conducts business based on a variety of laws and regulations, including the Food Sanitation Act, Product Liability Act, environmental laws, and labor-related laws. Changes in laws and regulations or unforeseen events could result in penalties, litigation, or social sanctions, leading to damage to brand value and increased response costs. It is recognized that there is a moderate possibility of this risk materializing due to heightened awareness of safety, security, and environmental issues affecting related laws and regulations. In response, the Company conducts regular compliance training and works to reduce this risk through SDGs activities, including CO₂ reduction and the use of renewable energy.

Large-scale disasters such as earthquakes, tsunamis, typhoons, and floods, as well as the outbreak of infectious diseases, could damage manufacturing facilities, halt production due to disruption of public services, stop logistics functions, or cause system failures, potentially requiring a long period and substantial costs for recovery. It is recognized that there is a moderate possibility of this risk materializing due to the trend toward more frequent and severe disasters. In response, the Company is formulating BCPs at each site, implementing equipment protection measures, introducing safety confirmation systems, and developing IT environments to support remote work.

Due to regulations limiting drivers' overtime work (the so-called '2024 Problem') and stricter environmental regulations, difficulties in arranging trucks or significant increases in freight charges could increase product shipping costs and cause supply delays, affecting business performance. It is recognized that there is a moderate possibility of this risk materializing, such as through increasing difficulty in contracting for long-distance transport. In response, the Company is reducing the workload on drivers by shifting to pallet transport and shortening transport distances by recommending that customers use products from nearby factories.