ENEOS Holdings, Inc.

Sales prices and purchase prices of crude oil, petroleum products, petrochemical products, electricity, and other commodities are affected by fluctuations in commodity market prices, which are determined by factors beyond the control of the Company and its group. Middle East conditions, OPEC production adjustments, shale oil trends, and fluctuations in Asian demand, among other factors, can compound to affect margins, potentially having a material impact on the Company's financial condition and operating results. Although the Company seeks to reduce market risk through hedging using derivative financial instruments, complete avoidance of such risk is difficult.

Because the Company holds foreign currency-denominated operating transactions and substantial foreign currency-denominated assets and liabilities, fluctuations in foreign exchange rates affect the yen-translated amounts of assets, liabilities, and income and expenses. This also affects the yen translation of the financial statements of overseas subsidiaries and equity-method affiliates, and in particular, the yen's exchange rate against the U.S. dollar directly affects crude oil procurement costs. Although hedging is conducted using derivative financial instruments, the Company discloses the impact on next period's earnings forecast through sensitivity analysis.

The Company's group businesses are subject to extensive environmental regulations, and in the event of environmental pollution or regulatory violations, the Company may be required to pay fines or damages, or may face difficulty continuing operations. As the shift toward a decarbonized society accelerates, regulations may be further strengthened going forward, and an increase in compliance costs is expected. With regard to climate change response, the Company discloses information based on the TCFD framework and is advancing countermeasures.

As the move toward a decarbonized society accelerates, the spread of fuel-efficient vehicles and the shift in energy sources to gas, electricity, and other alternatives are progressing, and domestic petroleum product demand is expected to continue to decline going forward. This decline in demand may further intensify competition in the domestic petroleum refining and sales business, potentially leading to margin compression. Although the Company's group forecasts demand fluctuations and takes necessary countermeasures, if a sudden change occurs that exceeds forecasts, it may affect the Company's financial condition and operating results.

The Company's group relies heavily on a limited number of supply sources in the Middle East for much of its crude oil, and if country risks such as political instability, social unrest, or changes in laws and regulations materialize in the region, significant disruptions to raw material procurement may occur. A deterioration in the Middle East situation would directly affect the Company's financial condition and operating results through a sharp rise in crude oil prices. Although measures such as diversification of supply sources are being implemented, complete elimination of geopolitical risk is difficult.

Continuous capital expenditure and investments are necessary to maintain and grow the business and to capture new business opportunities, but execution of plans may become difficult due to insufficient cash flow or other factors. If, due to changes in the external environment, actual investment amounts significantly exceed planned amounts, or if the expected earnings are not achieved as planned, the Company may need to recognize impairment losses on property, plant and equipment, goodwill, and intangible assets, which may affect the Company's financial condition and operating results.

The Company's group carries substantial interest-bearing debt, and additional borrowing or asset sales may be necessary to fund principal and interest payments. If domestic and overseas interest rates rise, the interest burden will increase, potentially adversely affecting the Company's financial condition and operating results. The availability of financing depends on external factors such as financial market conditions, stock prices, and the availability of asset sale counterparties.

As international competition for resource acquisition intensifies, the conditions for securing commercially producible reserves are becoming increasingly stringent, and if reserves cannot be replenished, production volumes may decline in the future. Reserve estimates involve subjective judgments based on geological, technical, and economic information, making accurate measurement difficult, and if actual reserves fall short of estimates, this may affect the Company's financial condition and operating results. Securing highly specialized personnel is also a challenge in the exploration and development business.

The Company's group holds substantial inventories, and if the net realizable value at the end of the period falls below book value due to declines in the prices of crude oil, petroleum products, and other items, a write-down of book value will occur and be recognized in cost of sales, among other accounts. In addition, because the Company adopts the weighted-average method for valuation, in a declining crude oil price environment, higher-cost inventories held at the beginning of the period can push up cost of sales, becoming a factor that reduces profit. These valuation fluctuations may directly affect the Company's financial condition and operating results.

The Company's group holds customers' personal information in connection with its petroleum sales and other businesses, and "personal information leakage" has been selected as a key group risk for fiscal year 2025, recognized as a priority management issue. Maintaining and strengthening protective measures may require substantial expenses going forward, and in the event that information is leaked or misused, there is a possibility of impact on the business and damage to social trust. Although risk reduction measures are being promoted primarily by the responsible departments, there is no guarantee of complete prevention.