SOMAR CORPORATION

Intensifying quality and price competition with competitors, combined with rising raw material purchase prices due to fluctuations in international crude oil market conditions and exchange rates, could lead to decreased sales volume, declining sales prices, and increased manufacturing costs, potentially adversely affecting business performance and financial condition. The Group is engaged in the manufacturing and sale of Coating Products, High-Performance Resin Products, Fine Chemicals, and other products, and these risks could affect these businesses broadly. To maintain competitiveness, the timely introduction of new products by the technology development department is required.

In the purchasing and sale of Electronic Materials, Functional Resin, Papermaking Chemicals, food materials, and other products, if price competition intensifies due to discount sales or the introduction of high-value-added new products by competitors, or if suppliers and sales customers engage in direct transactions, sales volume may decrease and sales prices may decline. Changes in suppliers' production and supply systems may also affect sales volume and prices. The Group aims to stabilize its earnings base by leveraging its dual characteristics as both a "manufacturer" and a "trading company," through the development of new customers and diversification of handled products.

Asahi Kasei Corporation, a specific supplier of Papermaking Chemicals, announced on May 27, 2025, its withdrawal from the SB latex business, and plans to end sales of the relevant products by December 2027, which is expected to result in the termination of transactions related to this business with the Group. Papermaking Chemicals (paper coating binders) account for a certain proportion of the Group's purchasing and sales business, and depending on the securing of alternative suppliers and discussions with sales customers, this could impact business performance and financial condition. The Group is discussing the matter with Asahi Kasei and its sales customers and is considering measures to reduce the impact on business performance.

The Group purchases a certain proportion of Electronic Materials and Functional Resin for circuit board materials from specific business partners, and the future management policies of these partners could affect the Group's business performance and financial condition. Although close and favorable relationships have been maintained over many years, the risk arising from changes in the partners' strategies or business policies cannot be eliminated. The Group aims to stabilize its earnings base by understanding customer needs and differentiating its business, thereby promoting the development of new customers and diversification of handled products.

In addition to domestic economic fluctuations, overseas economic fluctuations, changes in political conditions, currency value fluctuations, and social unrest could adversely affect the Group's business performance and financial condition. Natural disasters and fires are also recognized as risks that could affect business continuity. The Group strives to avoid the occurrence of these risks and to respond promptly when they occur.

Changes in laws and regulatory systems, including regulations on products and goods handled by the Group related to the environment, recycling, food safety, and other matters, could adversely affect business performance and financial condition. Disputes and litigation over intellectual property rights and product liability claims are also cited as similar risks. The Group is implementing and considering individual measures to reduce the likelihood of these risks materializing.

If a business partner experiences significant problems in repaying its debts, the Group may need to record additional allowances or incur bad debt losses, which could adversely affect business performance and financial condition. The Group conducts credit management through information gathering via sales activities and implements sufficient and necessary receivables management, but the risk of deterioration in a business partner's financial condition cannot be completely eliminated.

The Company holds shares of financial institutions and business-related companies for policy purposes, and depending on stock market trends and the conditions of investee companies, this could affect business performance and financial condition. Cross-shareholdings inherently carry the risk of valuation losses arising from changes in market conditions.

If the market value of the Group's fixed assets declines significantly or profitability deteriorates, the application of impairment accounting for fixed assets could result in impairment losses, affecting financial condition and business results. A deterioration in the business environment or a decline in market value could serve as a direct trigger.

If it becomes necessary to revise estimates of taxable income due to failure to achieve business plan targets amid a deteriorating management environment, or if there are tax system changes involving tax rate fluctuations, deferred tax assets may be reduced, affecting financial condition and business results. The Group regularly verifies recoverability based on projections of future taxable income and other factors, but the risk that estimates may fluctuate due to changes in the external environment remains.