Cosmo Energy Holdings Co., Ltd.

Crude oil procurement may be affected by political changes in the Middle East, East Asia, and elsewhere, as well as the prolongation of the conflict in Ukraine, and refinery shutdowns or interruptions to service station operations may occur. The effective blockade of the Strait of Hormuz, triggered by the large-scale attack on Iran by the United States and Israel on February 28, 2026, has already resulted in additional costs associated with alternative crude oil procurement and petroleum product imports. A crisis response headquarters, headed by the President, has been established, and measures such as developing alternative procurement systems and strengthening transportation systems are being implemented and continued.

Crude oil prices fluctuate due to various factors such as the production policies of oil-producing countries, geopolitical risks, and exchange rate movements, and due to the characteristics of inventory valuation under the total average method, a decline in crude oil prices pushes up cost of sales and affects business results. Gaps and time lags between international market conditions and domestic selling prices also affect profitability, and the Company discloses the sensitivity impact for FY2027 (ending March 2027) of a ±$1/barrel change in crude oil price and a ±¥1/dollar change in exchange rate. The Company is working to reduce risk through hedging via derivative transactions, partnerships with partners, and inventory optimization, among other measures.

In addition to structural factors such as the declining birthrate, aging population, population decline, and the hybridization of automobiles, domestic demand for fuel oil is expected to continue to decline due to the progress of the energy transition, and increased costs from GX-ETS, carbon levies, and the like may also put pressure on profitability. If the decline in demand proceeds at an unexpectedly rapid pace, there is a risk that the Group's business assets could become stranded. The Group is promoting new initiatives such as large-scale production of domestically produced SAF, expansion of green power sales, the battery storage business, and the hydrogen business, in order to respond to changes in demand structure.

If climate change countermeasures are rapidly strengthened due to changes in energy policy or regulations, this may affect decisions on portfolio transformation and strategic investments. In the wind power generation business, upfront investment is required for obtaining permits and licenses and conducting environmental assessments during the development stage, and there is a risk that the investment amount cannot be recovered if the project is abandoned. There are also concerns about declining profitability due to soaring materials and construction costs and intensifying competition, and the Company is working to reduce these risks through feasibility studies and other measures.

While carbon-neutral fuels are highly anticipated for realizing a decarbonized society, there are challenges in terms of production efficiency and cost, and technological development is needed for their widespread adoption. If, due to failures in technological development or other factors, the Group is unable to handle carbon-neutral fuels, it may become difficult to supply products in a decarbonized society, which could affect business results and financial condition. The Group is promoting various technological developments and studies, including Japan's first large-scale domestic production of SAF, to work toward reducing this risk.

Large-scale natural disasters such as earthquakes and tsunamis could cause devastating damage to facilities such as refineries, making early recovery difficult and resulting in enormous losses. In October 2025, a joint BCP drill involving three companies was conducted assuming a Nankai Trough megaquake, and in November 2025, a drill for the establishment of an emergency crisis response headquarters was conducted assuming a Tokyo Metropolitan earthquake, confirming the effectiveness of the BCP and identifying issues. The Company continues to promote measures such as installing emergency power sources, implementing seismic retrofitting, and developing BCP manuals.

Risks such as ransomware damage from cyberattacks, business suspension, and leakage of confidential information have been increasing in recent years, and leakage of customer information could damage brand image and erode customer trust, thereby affecting business results. The Company has established internal systems and regulations for managing confidential information, including personal information, and also supervises and manages outsourcing partners. The Company continues to implement measures such as developing ransomware response procedures, strengthening anti-virus measures, and enhancing personal information protection measures.

Accidents and industrial accidents caused by aging facilities or human error could halt operations at refineries, distribution centers, oil depots, service stations, tankers, and other facilities, affecting business results and financial condition. In addition to the Sakai Refinery's acquisition of Class A certification (Certified Advanced Safety Operator System), the Company aims to reduce troubles and improve operating rates by expanding the scope of APM implementation, building digital twins, and strengthening DX. The Company is working to prevent accidents before they occur by strengthening its OMS (Operation Management System) framework.

Amid a declining working population, competition to secure capable human resources is intensifying, and if the Group is unable to secure and develop personnel with the diversity and expertise necessary to promote its management strategy, this may adversely affect its business, business results, and financial condition. The Company is implementing measures such as reviewing its compensation system, strengthening autonomous career development, increasing investment in human resource development, and strengthening the hiring of women and career-track employees. The Company is working to reduce this risk through the expansion of self-development programs, development of management personnel, and diversification of recruitment methods.

If the internal control system does not function effectively, resulting in compliance violations, misconduct, or leakage of intellectual property to outside parties, the Company may be subject to administrative guidance or criminal penalties, and may lose the trust of stakeholders, thereby affecting business results and financial condition. The Company is promoting the continued implementation of corporate ethics and human rights training for all Group employees, the implementation of CSA (Control Self-Assessment), the strengthening of Group governance, and the strengthening of intellectual property management. The Company also continues to raise awareness of its internal whistleblowing system and strengthen related education.