HOKKO CHEMICAL INDUSTRY CO.,LTD.

Sales of agrochemical products are affected by changes in agricultural policy, market trends, weather conditions, and the occurrence of pests and diseases. In particular, if unexpected and rapid changes occur, including climate change, this could have a significant impact on the overall business of the Group, for which the Agrochemicals Business and Fine Chemicals Business are the main pillars of profit. While no specific individual countermeasures have been disclosed by the Group, continuous monitoring of the business environment is being conducted.

In the Fine Chemical products market, price competition is intensifying due to the emergence of new entrants and low-cost, novel products. The Group offers high value-added products utilizing the Grignard reaction, but if it is unable to appropriately respond to unexpected technological innovation or rapid market changes, this could lead to a decline in competitiveness and affect the business. The Group addresses this by accelerating development speed through enhanced research and inspection systems and by conducting regular market trend surveys.

The procurement and purchase prices of product raw materials are affected by conditions in Japan and overseas and by trends in crude oil and naphtha prices. If regulatory tightening, breakdowns, accidents, or supply chain disruptions occur at suppliers, stable procurement may become difficult, potentially disrupting production activities. The Group addresses this by diversifying procurement routes and promoting revisions to sales prices.

Because Fine Chemical products are produced by a Chinese subsidiary, the yen-converted amounts in the consolidated financial statements are affected by exchange rate movements. In addition, overseas transactions are conducted mainly in foreign currencies, so significant exchange rate fluctuations could affect earnings and financial condition. The Group partially hedges this risk through forward exchange contracts and foreign-currency-denominated receivables and payables, but this does not cover the full exposure.

The Chinese local subsidiary is affected by changes in laws and regulations and social conditions within China. If major legal reforms or changes in economic and social conditions occur beyond expectations, the business operations of the local subsidiary could be significantly constrained. The Group strives to actively gather information and implements measures aligned with China's policies, as well as capital investment to reduce environmental impact.

New product development requires substantial human and financial resources and a long period of time, and profit plans may be affected by changes in the market environment and technological progress during the development period. If development is significantly delayed or becomes difficult, this could lead to a decline in competitiveness and affect the business. The Group addresses this through accelerating development speed via enhanced research and inspection systems, regular market trend surveys, and verification of profit estimates.

Accidents, natural disasters, and other unforeseen events may cause operational suspension, production and supply shortages, quality abnormalities, deterioration of product storage conditions, and other contingencies, and physical and human damage to plants and surrounding areas cannot be completely avoided. Although the Group has product liability insurance (PL insurance), full coverage is difficult, and business could also be affected if quality problems or environmental/social issues occur. The Group addresses this by establishing management systems based on ISO9001, ISO14001, and ISO45001, and by formulating and training for business continuity plans (BCP).

The Group conducts business activities under domestic laws and regulations such as the Agricultural Chemicals Regulation Act, the Chemical Substances Control Law, the PRTR system, and environment-related laws, as well as the laws and regulations of each country in which it operates overseas. Significant regulatory revisions could result in substantial compliance costs or restrictions on business activities, potentially affecting the Group's business. The Group addresses this by establishing a basic compliance policy and code of conduct and by continuously monitoring developments in relevant laws and regulations.

In some overseas countries, protection of intellectual property rights is inadequate, and there is a risk that technology and know-how accumulated by the Group could be infringed upon by third parties. In addition, if the Group is sued by another company for infringement of intellectual property rights, there is a risk that injunctions or substantial damages could affect the business. The Group addresses this by actively acquiring intellectual property rights and promoting development and manufacturing processes that do not infringe on the rights of other companies.

Through its business activities, the Group holds numerous information assets, including personal information of business partners and trade secrets. If information leakage occurs due to increasingly sophisticated cyberattacks or unforeseen circumstances, this could affect the business and its credibility. The Group has implemented measures such as information security education for all officers and employees, the introduction of cyberattack response software, and systems to prevent misdirected emails, but complete prevention is difficult.