BP Castrol K.K.

The Company conducts nearly 100% of its business operations in Japan, and changes in domestic economic conditions and business trends directly affect product demand. If demand for automotive lubricants declines due to a deterioration in the economic environment, this may affect the Company's business results and financial position. The Company recognizes that there is a reasonable possibility of this risk materializing.

The cost of goods for the Company's core products is linked to the prices of raw materials such as base oil and additives, which in turn are heavily influenced by fluctuations in crude oil prices and foreign exchange rates. If crude oil prices surge due to geopolitical risks or production adjustments by oil-producing countries, or if the yen depreciates sharply, this could adversely affect business results and financial position through an increase in the cost ratio. The Company recognizes that there is a reasonable possibility of this risk materializing.

The Company disperses its major product storage warehouses across eight locations nationwide and has established an emergency response framework based on its Business Continuity Plan (BCP). If a natural disaster such as an earthquake occurs, depending on its scale and region, disruptions to logistics and supply systems may occur, potentially affecting business results and financial position. The Company recognizes that there is a reasonable possibility of this risk materializing.

Lubricants, the Company's core products, are used in engines and transmissions of two-wheeled and four-wheeled vehicles, and business results may be affected by drastic environmental changes such as fluctuations in fuel prices, new vehicle sales trends, and tightening of greenhouse gas reduction regulations. If next-generation vehicles such as EVs and FCVs become widespread in the future and the composition of registered vehicles changes, this could lead to a structural decline in lubricant demand. The Company does not currently anticipate a short-term or drastic change in this composition, and judges the likelihood of this risk materializing to be low.

The automotive lubricant market includes numerous competitors, such as overseas brands affiliated with international oil majors, genuine brands of domestic automobile manufacturers, and private brands of mass retailers. If competitors strengthen new product launches, advertising, or pricing measures, the Company's market share and profitability may decline, affecting its business results. The Company currently recognizes the likelihood of this risk materializing as low, but continuous monitoring of changes in the competitive environment is necessary.

The Company relies on external contractors for domestic product manufacturing, and some products are imported from the bp Group. If a contractor experiences a business deterioration or quality incident, although it is possible to switch to an alternative contractor, a temporary disruption in product supply may occur until a new manufacturing system is established, potentially affecting business results and financial position. The Company seeks to reduce this risk through continuous quality inspections, HSSE audits, and confirmation of contractors' business conditions, and recognizes the current likelihood of this risk materializing as low.

The Company engages in cross-border related-party transactions with the parent company group, including royalty payments and product imports, and sets transaction prices in accordance with the arm's-length principle. If a discrepancy in views arises with tax authorities, additional tax assessments may affect the Company's business results and financial position. The Company currently judges the likelihood of this risk materializing to be low, but continuous response to changes in the international tax environment is required.

The Company holds personal information of customers and business partners as well as important management information, and has implemented measures such as information protection management regulations, monitoring by the information protection team, cybersecurity management by the bp Group, and employee training. In the event of an information leak, this may affect business results and financial position through a decline in trust from customers and business partners and damage to the corporate image. Given the increasing sophistication and diversification of cyberattacks, continuous strengthening of the response framework is necessary.

Although no large-scale global infectious disease outbreak is currently observed, the possibility remains that seasonal or regional infectious disease outbreaks could affect business activities. If disruptions to production, logistics, or sales activities occur, or if restrictions are imposed on economic activities, this may affect business results and financial position. The Company maintains a framework to minimize such impact through flexible working arrangements, including remote work, and continued use of digital tools.

The Company has entered into license agreements and other arrangements concerning brand trademarks and manufacturing/sales with bp p.l.c. and Castrol Limited, paying royalties while exclusively handling the sale of bp Group-branded products in the Japanese market. If any provision for contract termination (such as defamation, filing for civil rehabilitation, payment delays, or breach of contract) is triggered, or if the contract terms are changed, this may cause temporary disruptions to business operations and affect business results. In addition, in light of the bp Group's announcement of a transaction to transfer the Castrol business to Stonepeak (subject to conditions such as regulatory approval), the Company may need to respond to changes in contracting parties and contract terms.