AGC Inc.

The AGC Group conducts global operations spanning Japan, Asia, Europe, and the Americas, and is exposed to geopolitical risks such as deterioration in political and economic conditions, import/export and foreign investment regulations, economic sanctions between countries, and terrorism or war. Should such events occur, they could disrupt overseas business activities and have a significant impact on the Group's business results and financial condition. The Group closely monitors political and economic conditions and regulatory developments in each country and region, and responds according to the situation.

Market trends across a wide range of industries, including construction and building materials, automotive, electronics and displays, chemicals, and pharmaceuticals and agrochemicals, are directly linked to the AGC Group's earnings. Economic fluctuations and declines in demand in various countries and regions may significantly affect business results through decreases in sales volume and price declines. In particular, in the Electronics segment, fluctuations in the LCD TV and smartphone markets, and in the Life Science segment, the development status of the pharmaceutical and agrochemical industries, have a significant impact on earnings. The Group is promoting productivity improvements and reductions in fixed and variable costs, aiming to build an earnings structure resilient to changes in the business environment.

There is a movement in Europe and certain U.S. states toward comprehensive regulation of PFAS (perfluoroalkyl substances, etc., of which there are approximately 12,000 types), and fluorine-related products manufactured and sold by the Group's Chemicals segment may become subject to such regulation. In addition, in the United States, multiple lawsuits have been filed by individuals, local governments, and others citing environmental and health impacts from products such as fluorine-based fire-extinguishing agents as the cause of action; an unfavorable outcome in these lawsuits could affect the Group's business results and financial condition. The Group is working to ensure that the scope of regulation is appropriately based on scientific knowledge, including by submitting public comments to European authorities, and is proceeding with litigation response with the cooperation of legal counsel.

Since the adoption of the Paris Agreement, energy-related policies and regulations have become increasingly stringent. If carbon pricing mechanisms such as carbon taxes are fully implemented, the associated response costs could affect the Group's profit and loss. There is also a risk of lost business opportunities due to reputational decline if the Group fails to achieve its greenhouse gas emission reduction targets or fails to respond to stakeholder demands for decarbonization. The Group has set a 2050 target of net-zero emissions from its own business activities (Scope 1, 2), and is working on the development of manufacturing technologies and equipment as well as building business models that contribute to the spread of renewable energy.

Information security threats such as temporary operational shutdowns due to cyberattacks, leakage of information assets, unauthorized access, and other unforeseen incidents are increasingly heightened. If critical business operations are disrupted or confidential data is leaked, this could have a significant impact on the Group's business results and financial condition. The Group works to protect information assets such as IT systems, production systems, and data, and has implemented measures to prevent security incidents and minimize their impact when they occur, but complete defense cannot be guaranteed.

If a serious production issue occurs at the Group or at a contracted manufacturer, causing a temporary or long-term production suspension, this could have a significant impact on business results and financial condition, as some products cannot be produced as substitutes. In addition, tight supply, delays, or price fluctuations in specialty raw materials and materials for which procurement sources are limited pose similar risks. The Group addresses these risks by securing multiple contracted manufacturers, examining alternative raw materials, and promoting multiple sourcing.

Fluctuations in the prices of electricity, fuel gas, heavy oil, and raw materials directly affect the Group's production costs and may affect its business results and financial condition. The Group hedges price fluctuation risk for some raw materials and fuels through commodity derivative transactions and other means, but the impact of price increases may not be completely eliminated.

The AGC Group manufactures and sells products worldwide, and local currency-denominated sales, expenses, and assets are affected by exchange rates when converted into yen. Exchange rate fluctuations also affect the purchase prices of foreign currency-denominated raw materials and the setting of product sales prices. Significant fluctuations in exchange rates could have a significant impact on the Group's business results and financial condition. The Group works to mitigate this risk through hedging transactions and the global allocation of production sites.

For non-financial assets such as property, plant and equipment, goodwill, and intangible assets, an impairment loss may occur if the recoverable amount falls below the carrying amount due to a decline in profitability or changes in fair value, among other factors. In particular, at AGC Biologics A/S (Denmark) in the Life Science segment, operating income has deteriorated due to a delayed recovery from sluggish demand in the biopharmaceutical active ingredient market caused by reduced capital inflows to biotech ventures, as well as increased costs associated with the operation of new production lines, and indications of impairment have been identified (no impairment loss was recognized in the most recent impairment test). Depending on future market and economic conditions, an impairment loss may occur, which could have a significant impact on the Group's business results and financial condition.

There is a risk that natural disasters such as large-scale earthquakes, tsunamis, and wind and flood damage, or unknown infectious diseases, could cause unforeseen events such as business interruption, damage to production facilities, and suspension of product transportation. If events exceeding the assumptions of the business continuity plan occur, this could disrupt supply to customers, as some products cannot be produced as substitutes, and could have a significant impact on the Group's business results and financial condition. The Group conducts risk assessments at its major sites and has formulated business continuity plans at high-hazard sites to establish response systems.