SANKYO KASEI CORPORATION

The Group primarily conducts business targeting domestic demand, resulting in a structure where performance is easily influenced by domestic economic trends. If domestic demand decreases or prices decline due to intensified market competition, this may adversely affect business results and financial condition. The Group is working to diversify risk by pursuing new business development and overseas business expansion.

The relocation of manufacturing bases overseas by major business partners is progressing, creating a risk of loss of business rights. In response, the Group is expanding overseas bases centered on Southeast Asia and promoting globalization; however, if it fails to respond appropriately and in a timely manner to such relocations, business rights may decline, potentially affecting business results and financial condition.

The prices of petrochemical products, which are the Group's main products handled, are directly affected by fluctuations in crude oil prices. Although the Group strives to negotiate prices with suppliers and reduce costs, if it is unable to fully pass on significant crude oil price fluctuations to product prices, profitability may be squeezed, potentially adversely affecting business results and financial condition.

The Group is exposed to foreign exchange fluctuation risk through import/export transactions and other activities, and utilizes forward exchange contracts as a hedging tool; however, if exchange rates fluctuate beyond expectations, this may affect business results and financial condition. It should be noted that hedging through forward exchange contracts does not guarantee complete elimination of risk.

The Group extends credit, such as accounts receivable, to domestic and overseas business partners, creating a risk of bad debt due to deterioration in the financial condition of such partners. Although the Group conducts regular evaluations of business partners and takes protective measures as necessary, if unexpected bad debts occur, this may affect business results and financial condition.

The Group holds shares of business partners for the purpose of securing stable business relationships; however, if there is a sharp decline in market value due to worsening market conditions or deterioration in the creditworthiness of investee companies, impairment processing may become necessary, potentially affecting business results and financial condition. This entails an inherent risk that stock market fluctuations directly impact financial figures.

The Group engages in investment activities such as establishing new companies and making capital investments in manufacturing subsidiaries, and profits may temporarily decline during the period before such businesses generate stable earnings. Although the Group takes risk mitigation measures by making decisions after carefully examining the feasibility and profitability of business plans, if the initial plans cannot be achieved due to rapid changes in the market environment or unforeseen circumstances, this may affect business results and financial condition.

In the event of a natural disaster such as an earthquake or storm/flood damage, or a pandemic, there is a risk that sales activities may stagnate due to supply chain disruption, or production activities may stop due to damage to factory facilities. Although the Group has taken measures such as formulating a BCP, conducting disaster prevention drills, and establishing an employee safety confirmation system, in the event of a large-scale disaster, this may have a material impact on business results and financial condition.

If the core system suffers catastrophic damage due to an unexpected failure or other cause, business interruption may result in lost opportunities and other issues, potentially affecting business results and financial condition. The Group is working on establishing an "Information Management Regulation," strengthening information security, and building a backup system; however, it is difficult to completely eliminate unexpected risks, including cyber attacks.