NITTO DENKO CORPORATION

With overseas revenue accounting for over 80% of total revenue and the majority of overseas transactions conducted in US dollars, exchange rate fluctuations beyond expectations or financial system instability directly impact business performance. The rise of protectionism, including US tariff policy, and trade restrictions related to security also constitute additional risk factors. The Group aims to reduce this risk by timely monitoring of intra-group fund balances and assets/liabilities by currency, and through foreign exchange risk hedging via the establishment of regional fund management hubs.

Disruptions to international logistics networks caused by military conflict in the Middle East or the closure of the Strait of Hormuz could lead to sharp increases in shipping costs and tightened transport capacity, potentially affecting business performance. With approximately 40 affiliated companies engaged in trade transactions, risks such as import/export restrictions, labor disputes, and cyberterrorism also exist. The Group is strengthening supply chain resilience through supply chain risk visualization and the establishment of a logistics BCP.

The Group procures petroleum-derived raw materials, and a reduction or suspension of supply due to deteriorating conditions in the Middle East, natural disasters, or accidents could disrupt the supply-demand balance, making it difficult to secure necessary raw materials and leading to cost increases. In response to heightened geopolitical risks in recent years and chemical substance regulation risks, the Group has made the Supply Chain Committee a permanent organization within the Procurement Division, working to reduce risk through securing multiple procurement sources and inventory management.

The display industry, the Group's primary market, undergoes rapid market changes and faces intense competition, posing risks of declining revenue due to commoditization of components and market maturation, as well as pressure on profitability from new competitor entrants. Shifts in US tariff policy leading to high tariffs on display-related products, and semiconductor shortages and price surges driven by a rapid increase in AI demand, could also affect the supply chain. The Group addresses these risks through early identification of new needs from leading customers in the display industry, accelerated product deployment into non-display markets, and BCP measures through diversification of production sites.

Demand for contract manufacturing of nucleic acid drugs fluctuates depending on the progress of customers' research and development activities and clinical trials, and the interruption or discontinuation of clinical trials based on scientific evidence could affect business performance. US tariff policy and conditions in the Middle East also pose additional risks by increasing procurement costs or making raw material procurement difficult. The Group is working to mitigate the impact of demand fluctuations by accepting a wide range of projects and further reducing the cost of raw materials.

In an industry characterized by rapid market change, new technologies and products from other companies could cause the Group's products to become unexpectedly obsolete, potentially affecting future business performance. The Group addresses this through research, development, and capital investment based on the "Three New Activities" and by concentrating resources on candidate themes under "PlanetFlags™/HumanFlags™." It is also working to create and maintain barriers to entry by strengthening intellectual property management.

Increasingly sophisticated cybercrime and rising human-related risks such as internal misconduct or negligence could, if they result in information system failures or the leakage or unauthorized use of technical, customer, or personal information, affect business performance. In addition to multi-layered defense, early detection, and CSIRT development, the Group conducts BCP drills assuming emergency scenarios, and implements multifaceted measures such as education for officers and employees, targeted phishing email training, and restrictions on means of information removal.

Rising international demands for emissions reduction, stricter Scope 1, 2, and 3 disclosure requirements, higher carbon prices, and increased costs for procuring renewable energy could raise both direct and indirect costs related to manufacturing. There are also concerns that delays in environmental response could lead to a loss of competitiveness amid growing demands for decarbonization and environmental performance from customer companies and global markets. Under SBTi-certified targets (a 46.3% reduction in Scope 1 and 2 emissions and a 25% reduction in Scope 3 emissions by 2030), the Group is promoting energy conservation and the introduction of renewable energy.

Operating in 27 countries and regions, failure to comply with a wide range of laws and regulations—including trade and tariff regulations, environmental and sustainability regulations, and tax and employment regulations—could result in penalties or risks to business continuity. Changes to or tightening of laws and regulations could also suddenly restrict business activities that were previously permissible. The Group addresses this by closely monitoring legislative trends and regulatory amendments, conducting prior impact assessments, deploying the "Nitto Group Code of Conduct" in 18 languages, and operating a global whistleblowing system.

In M&A and business alliances, significant changes in market and competitive conditions could prevent the achievement of originally expected results and synergies, potentially affecting business performance through impairment of goodwill or fixed assets. There is also a risk that governance and internal controls may fail to function due to misconduct by officers or employees, or decisions that do not conform to management policy, across the Group, which includes 87 subsidiaries and 1 affiliated company. The Group strengthens close governance and internal controls through management along three axes—business, region, and function—sharing issues and risks at monthly management strategy meetings and promptly implementing improvements.