Idemitsu Kosan Co.,Ltd.

The Group depends heavily on the Middle East for the majority of its crude oil and naphtha imports, and there is a possibility that prolonged import constraints could arise due to heightened tensions in the Middle East or increased maritime transport risk along sea lanes including the Strait of Hormuz. While the Group has entered into long-term import contracts with major oil-producing countries and is pursuing risk diversification within the region, if political instability or crude oil production adjustments occur, this could have a material impact on the Group's financial position and operating results.

Crude oil prices fluctuate significantly due to Middle East conditions, political instability in oil-producing countries, monetary policies of countries around the world, speculative trading, and other factors; a US$1 per barrel change in the Dubai crude oil price could increase or decrease profit before tax by approximately ¥8,000 million annually. Since inventories are valued using the total average method, in a declining crude oil price environment, higher-priced inventories carried over from the beginning of the period push up cost of sales, becoming a factor that worsens profit and loss. While the Group strives to secure margins by linking petroleum product prices to domestic market prices, if domestic market prices remain weak due to intensifying competition in the domestic market, this could have a material impact on the Group's financial position.

Since crude oil imports are conducted in US dollar terms, fluctuations in the yen's exchange rate against the US dollar directly affect crude oil procurement costs and inventory valuation in the Fuel Oil segment; a ¥1 change per US dollar could increase or decrease profit before tax by approximately ¥4,000 million annually. The Group holds substantial foreign-currency-denominated transactions and foreign-currency-denominated assets and liabilities, and exchange rate fluctuations also affect the income from foreign-currency-denominated transactions as well as the yen-translated amounts in the financial statements.

In the Basic Chemicals market in Asia, including Japan, there is a rapid increase in new and expanded large-scale plants, centered on China, raising concerns about oversupply and weak demand accompanying the slowdown in economic growth in emerging countries. If the pass-through of naphtha price fluctuations to product prices becomes limited, or if intensifying market competition and weak demand occur simultaneously, the Group's financial position and operating results could be affected.

The Group plans strategic investments in growth areas such as electrification/ICT and hydrogen, ammonia, SAF, and synthetic fuels; however, if the business assumptions at the time of decision-making change due to increasing uncertainty in the business environment, the Group may lose expected revenue opportunities. If investments fail to generate returns as planned due to domestic and international economic conditions, delays in market expansion, or competition with other companies in development, the Group may recognize impairment losses on fixed assets. The Group strives to balance investment risk reduction with faster decision-making by designing investment review processes tailored to the scale of risk associated with the investment amount, among other factors.

The Nghi Son Refinery and Petrochemical Complex (NSRP) in Vietnam is a large-scale project with total project costs of approximately US$9 billion, of which US$5 billion was raised through project financing, with the Group providing debt guarantees to the syndicate of banks. With respect to the Group's 35.1% equity stake, if the project does not proceed as planned due to changes in Vietnam's political and economic conditions, laws, regulations, employment environment, or other factors, the Group's financial position and operating results could be affected.

The Group is subject to a broad range of environmental protection laws and regulations in Japan and overseas, and is regulated with respect to pollutant emissions and waste disposal from refineries and plants, among other matters; penalties may be imposed in the event standards are exceeded. The introduction of new regulations by authorities in various countries, as well as compliance with current and future environmental regulations, could result in substantial expenditures, and changes in regulatory trends, including those related to climate change response, could affect business costs.

The Group is exposed to risks including natural disasters such as earthquakes, tsunamis, and typhoons; fires, explosions, and large-scale oil spills at refineries and plants; maritime accidents and piracy involving large tankers; system outages and information leaks due to cyber attacks; and business interruption due to widespread outbreaks of infectious diseases. The Group has established response regulations and business continuity plans (BCP) for crisis events, including regional earthquake and tsunami versions covering the Nankai Trough, and conducts comprehensive disaster prevention drills annually, while also preparing for losses by procuring appropriate insurance globally through the use of its captive reinsurance subsidiary.

If the Group fails to ensure compliance with domestic and international laws, regulations, and rules, or the effective functioning of internal controls, it could lose the trust of stakeholders and damage its reputation. In addition, if an unexpected large-scale recall or litigation occurs, this could result in direct legal liability as well as a decline in brand image and reputation, potentially affecting the Group's financial position and operating results. The Group is working to strengthen its compliance promotion framework and internal controls based on its compliance regulations.

The Group handles a large volume of customer personal information in its petroleum product sales, electricity retail, and credit card businesses, among others; if management is inadequate or unauthorized external access occurs, substantial costs could be incurred. If the Group's response to the expanding scope and tightening of personal information protection laws and regulations in Japan, Europe, and elsewhere is insufficient or inadequate, this could lead to substantial fines and damages, loss of credibility, claims, and litigation, potentially affecting the Group's business and operating results.