NIHON NOHYAKU CO.,LTD.

Sales of agrochemical products and agrochemical technical grade active ingredients are directly and indirectly affected by domestic and overseas political and economic conditions, agricultural conditions, weather, occurrence of pests and diseases, and public regulations. As the Group has sales bases both domestically and overseas, and the majority of exports and sales consist of agrochemical-related products, the impact of these changes in the external environment on business performance is extensive.

As a result of cost reduction initiatives, procurement sources for agrochemical technical grade active ingredients, raw materials, and auxiliary materials are concentrated in specific regions and suppliers, with a high level of dependence on China in terms of total annual purchase amount. If procurement constraints arise due to tightened regulations in the counterpart country or operational accidents at suppliers, this could affect business performance. The Group is working to reduce this risk by diversifying its procurement sources.

The purchase prices of agrochemical raw materials and auxiliary materials are affected by domestic and overseas market conditions, exchange rate fluctuations, and trends in crude oil and naphtha prices. While the Group strives to avoid impacts through negotiating price reductions, passing costs on to sales prices, and hedging foreign exchange risk, unforeseen circumstances could affect business performance.

In addition to the import of raw materials including agrochemical technical grade active ingredients and export of products, the Group uses the US dollar, Indian rupee, and Brazilian real as its main foreign currencies in its production and sales activities in India, Brazil, and the United States. When preparing consolidated financial statements, there is a risk that the yen-converted amounts will fluctuate even if the value of local currencies remains unchanged, which could affect business performance and financial condition.

The development of new products requires substantial technical, financial, and human resources over a long period, and the success or failure of development is affected by changes in market conditions, the progress of technological standards, and changes in regulatory trends during that period. If development efforts are unsuccessful, this could have a material impact on future growth and profitability.

Damage to production facilities or plant accidents caused by large-scale earthquakes, typhoons, and other natural disasters could result in unforeseen circumstances such as plant shutdowns, raw material supply shortages, and quality abnormalities. Although the Group conducts strict inspections upon receipt of raw materials, product quality checks, and regular equipment inspections, there is no guarantee that the impact of natural disasters and accidents can be completely eliminated, and this could affect business performance and financial condition.

The Group's domestic and overseas sales and exports are subject to a variety of laws and government regulations, including the Agricultural Chemicals Regulation Act, trade-related laws, the Antimonopoly Act, and the Product Liability Act, and in recent years, regulations related to agrochemicals have been tightened globally. If there are delays or discontinuations in new registrations of agrochemical technical grade active ingredients, or if existing registrations are revoked, this could hinder business development and have a material impact on business performance. The Group strives to address this through the activities of its Compliance Committee.

The Group strategically implements corporate acquisitions and business investments on a global basis, and strives to avoid risk through detailed due diligence. However, if it is determined that expected results cannot be achieved due to future uncertain economic conditions or changes in the business environment, valuation losses on shares of affiliated companies or impairment losses on goodwill may occur, which could affect business performance and financial condition.

There is a risk that litigation or other legal proceedings may arise with business partners or third parties in connection with domestic and overseas business operations. If significant litigation or similar proceedings are brought, this could affect the Group's business performance and financial condition.