MORESCO Corporation

The Group recognizes transition risks (rising costs, market changes) and physical risks (supply chain disruption) as having both high importance and high probability of occurrence. Capital investment and business restructuring to address climate change may become necessary, potentially affecting business performance and financial position. At the same time, the Group also views climate change as an opportunity, aiming to enhance corporate value through proactive engagement with sustainability issues.

The Group's overseas sales reached ¥14,479 million in the fiscal year ended February 2025 (42.1% of net sales), with business operations centered on China and Southeast Asia. Economic fluctuations, currency value changes, changes in political circumstances, disasters, epidemics, changes in laws and regulations, and other factors may affect business performance and financial position. The Group has local subsidiaries in China, Thailand, Indonesia, the United States, and India, and diversification against geopolitical risk remains limited.

In the Specialty Lubricants segment, manufacturing equipment for high-temperature lubricants is concentrated at the Ako Plant, and manufacturing equipment for hard disk surface lubricants is concentrated at the head office and research center, while in the Materials segment, liquid paraffin and sulfonate are produced only at the Chiba Plant. In the event of a prolonged production halt due to a major incident, since inventory levels amount to only about one month's worth, there is a risk that product supply could be temporarily suspended. The Group seeks to mitigate this risk through BCP formulation, regular equipment maintenance and inspection, and disaster prevention drills.

In the Materials segment, the Group has established a closed system in which waste sulfuric acid treatment is outsourced via a direct pipeline connection to an adjacent external company. If that company's plant were to relocate, downsize, or otherwise change its facilities, this could directly affect the Materials segment's production capacity. Since production of liquid paraffin and sulfonate is centralized at the Chiba Plant, the Group faces a structural vulnerability with limited alternative means. It is addressing this through securing raw material procurement sources at the global level and diversifying the raw materials used.

Key raw materials include lubricants, petrochemical products, and chemical products, which are directly affected by fluctuations in crude oil and naphtha prices. In addition to domestic and overseas supply-demand trends, there is a possibility that raw material availability could be disrupted by supply stoppages due to disasters or accidents, or by supplier-side business consolidation. The Group implements product price revisions linked to crude oil and naphtha prices with major customers of Specialty Lubricants, while also promoting cost reductions and shifts toward higher value-added products; however, if such pass-through is insufficient, business performance may be affected.

Although the Group has established an internal quality assurance system, including ISO 9001 certification, unexpected quality defects could result in compensation costs, loss of customers, and litigation risk. While the Group carries product liability insurance, there is no guarantee that it would fully cover the ultimate amount of damages, which could affect business performance and financial position. Loss of trust due to quality issues could also directly damage the customer base, requiring continuous strengthening of quality control systems.

Under the 10th Medium-Term Management Plan (starting in fiscal 2024), the Group is promoting a cross-divisional development framework called "Project MOLGADC" and investing significant management resources in R&D, including industry-government-academia collaboration. While the R&D and sales departments work together to grasp market needs and bring research results to fruition quickly, if returns commensurate with the investment are not achieved, this could affect business performance and financial position. The success or failure of new product development is a key structural factor in improving medium- to long-term profitability.

In consideration of the risk of leakage of manufacturing method patents and Specialty Lubricants formulation know-how, the Group has a policy of deliberately refraining from filing patent applications for certain technologies. As a result, if another company files for and obtains a patent on the same subject matter, the Group's business activities could be restricted. As a countermeasure, the Group maintains internal records of implementation to support a claim of "non-exclusive license based on prior use rights," but the costs and business impact in the event of a rights dispute cannot be ruled out.

Amid rising risks of information leakage from cyberattacks, unauthorized access, computer virus infections, and similar threats, the Group has established an information security policy, introduced security countermeasure products, and conducted education for officers and employees. However, if an information leak were to occur due to unforeseen circumstances, it could affect business performance and financial position through loss of social trust and other factors. Given the increasing sophistication of threats in recent years, continuous strengthening of countermeasures is essential in this area.

If profitability declines due to sudden changes in market conditions or other factors, it may become necessary to record valuation losses on inventory assets. Additionally, if there is significant deterioration in the business environment or a decline in market prices, the Group may need to recognize impairment losses on held fixed assets, which could have a material effect on business performance and financial position. Both are applications based on accounting standards, and this risk inherently reflects deterioration in the external environment directly in financial figures.