KUMIAI CHEMICAL INDUSTRY CO., LTD.

The substance patent for the herbicide for upland crops "Axeev," the company's core product, has expired, creating a risk of decreased sales and profit due to entry by generic products from other companies. With overseas sales accounting for approximately 60% of total sales, a decline in Axeev's market share or the emergence of strong competing products would directly affect business performance. In response, the company monitors generic product registration and production status in each country and is building measures to maintain market share.

With the overseas sales ratio reaching approximately 60%, deterioration of economic conditions in key markets, decreased demand for agrochemicals due to falling crop prices, and demands for price reductions could affect business performance. The company views changes in U.S. tariff policy as particularly significant, as tariff increases could raise costs, leading to reduced price competitiveness and lower sales volumes. The company works to identify changes in market conditions early through strengthened collaboration with sales partners and overseas subsidiaries in each country and by utilizing external databases.

With a high overseas sales ratio and six consolidated subsidiaries and three equity-method affiliates overseas, sharp fluctuations in exchange rates could affect business performance and financial condition. In addition, since the company imports raw materials including agrochemical active ingredients and chemical product raw materials, exchange rate fluctuations also affect procurement costs. The company hedges this risk through forward exchange contracts and by unifying settlement currencies in triangular trade.

Commercialization of agrochemicals requires strict review under each country's registration system, and depending on the results of efficacy and safety testing, development may be discontinued or the range of applicable crops may be restricted. Since development periods are lengthy, there is a risk that development outcomes may not translate into earnings due to changes in market conditions, the emergence of competing products, or regulatory revisions. The company engages specialist agrochemical registration consultants and works to identify regulatory developments early, conducting registration feasibility assessments from an early stage.

The company relies on overseas imports for certain raw materials and has limited procurement sources for others, so failure by suppliers to fulfill supply contracts could delay or halt production. The heightening of geopolitical risk amid diversification of the global balance of power could disrupt supply chains and, through economic coercion, make it difficult to secure raw materials and increase costs, pressuring profits. The company is securing inventory through early ordering of raw materials, arranging alternative products, and diversifying its supply sources.

Stricter GHG emission regulations could increase business costs through rising energy prices, the introduction of carbon taxes, and additional capital investment. There is also a risk that reductions in farmland area and crop yields due to climate change could lower demand for agrochemicals. Under its endorsement of the TCFD recommendations, the company is reviewing manufacturing processes and introducing efficient equipment, while also working to conserve biodiversity and natural capital.

If information systems are disrupted by cyberattacks or natural disasters exceeding expectations, loss of social trust, litigation, and social sanctions could affect business performance and financial condition. Violations of personal information and data protection laws enacted or revised in each country could also result in substantial fines or business suspension risk. The company is promoting information security education and building a system for rapid response in the event of an incident.

Amid intensifying competition, serious compliance violations arising from demands for product differentiation, delivery deadline adherence, and pressure to achieve performance targets could affect business performance and financial condition through increased response costs and loss of customer trust. Domestic and international laws and regulations concerning chemical substances are trending toward tightening, and unexpectedly stringent environmental regulations could require substantial countermeasure costs. The company works to detect fraud risk through regular compliance awareness surveys and operation of an internal reporting system.

Amid ongoing investment in capital expenditure and M&A, if a significant decline in the value of business assets or reduced profitability makes investment recovery unlikely, impairment losses could affect business performance and financial condition. There is also an impairment risk related to strategic shareholdings due to declines in market value. The company addresses this through accurate assessment of the management status of group companies, sharing progress on important matters, and monitoring the market value of strategic shareholdings.

Since agrochemicals require registration of manufacturing locations, it is difficult to secure emergency alternative production sites in the event of sudden natural disasters such as earthquakes or outbreaks of infectious disease, creating a risk that production and supply could be temporarily suspended. The increasing scale of natural disasters and the emergence of new infectious diseases could cause widespread disruption to social functions and supply chains. The company is preparing for emergencies through BCP formulation, regular drills, and operation of a safety confirmation system.