Business and Other Risks

Set out below are those matters relevant to the Tokuyama Group's business status and financial conditions that could potentially have a significant influence on investor decisions. Please note that the matters listed do not cover all risks relevant to the Tokuyama Group (hereinafter referred to as "the Group"), and it is thought that there are risks other than those matters listed that could potentially influence investor decisions.
The matters listed are those regarded as relevant as at June 25, 2025.

(1) Natural Disasters

There is no guarantee that the effects of earthquakes, tsunamis, extreme weather conditions (typhoons, storms, torrential rains, etc.), and other natural disasters on production facilities as well as logistics related to the procurement and product sales functions can be completely prevented or mitigated. Also, should events lead to a significant decrease in production volume or, in the worst case, the Group be forced to discontinue production for a protracted period, there is the possibility that any such situation greatly affects the Group's business performance and financial condition.

Countermeasures
The Group has developed a business continuity management approach and conducts BCP and safety confirmation drills in the event of a large-scale earthquake.
In addition, the Group conducts drills in cooperation with local communities and governments to identify issues and strengthen response capabilities.

(2) Accidents and Malfunctions

In the event of a major disruption in production activities owing to such factors as a fire, explosion, leakage, damage, or breakdown of equipment and machinery, or delays in the procurement of raw materials as a result of a shipping or railroad accident, the possibility exists that the Group's business performance and financial condition may be significantly affected. In addition, accidents such as fire, explosion, leakage, etc. may cause injuries and other personal damages, as well as impacts on the environment and neighboring areas.

Countermeasures
The Group performs day-to-day and periodic facility maintenance to minimize the adverse effects from any disruption to its production operations. In addition, the Group formulated rules regarding disaster countermeasures under which it works in unison with its Group companies in an effort to prevent accidents.

(3) Infectious Disease (Pandemic)

In the event that novel coronavirus or other serious infection disease spreads at the Group's workplaces, partially or completely suspending operations would become necessary, and there is the possibility that any such situation greatly affects the Group business performance and financial conditions.

Countermeasures
In order to ensure the safety of executives, employees, customers, and others, and to minimize any impacts on the Company's business activities, the Group will establish an Infectious Disease Crisis Response Headquarters (headed by the President) in accordance with its infectious disease crisis management standards, disclose information, and evaluate countermeasures. Given the varying degrees of impact and risk due to fluctuations in the contagious nature of each pandemic and virulence, the Group will implement appropriate measures in accordance with the level of crisis.

(4) Country Risk

The Group's products are sold in countries and regions that include Japan, the United States, Asia, Europe, and there is the possibility that the economic conditions in each country or structural changes in the market and industry could exert a significant influence on sales of the Group's products. In the event of risk arising, for example due to social unrest and its prolongation brought about by acts of terrorism, war or other contributory factors, there also exists the possibility that any such situation could greatly affect the Group's business performance and financial conditions.

Countermeasures
The Group aims to increase productivity and maintain high quality by transitioning toward a robust business structure that is resilient against changes in the Company's operating environment and is capable of sustainable growth, while also pursuing cost reductions. The Group consistently monitors and will take appropriate measures in response to customer trends, political and economic conditions in relevant countries and areas, and business conditions.

(5) Information Security and System Risk

In the event of a failure in the IT systems used by the Group due to such factors as cyber-attacks or IT systems and/or equipment failure, or failure during IT installation or modification, the possibility exists that a wide array of business processes that rely on IT including the production, sales, R&D, procurement, and accounting functions could be disrupted and in turn have a significant impact of the continuity of the Group's continuity.
In addition, in the event that new technologies, know-how, and information obtained mainly through R&D are leaked to outside parties, it may result in a loss of public trust and the inability to recover the costs invested mainly in R&D. There is the possibility that such a situation greatly affects the Group's business performance and financial condition.

Countermeasures
The Group has installed and operates its core system servers in data centers that offer high level of security. Also, data is backed up on a regular basis in an effort to hedge against the risk of an unlikely emergency event. Furthermore, the Group has put in place a structure to promote countermeasures. While at the same time providing education. Through these and other means, the Group is taking steps to thoroughly manage confidential information and personal information in an effort to strengthen the protection of information security. Moreover, in order to mitigate risks stemming from digital data leaks caused by cyber-attacks or from IT system outages and other failures, the Group's dedicated cyber security organization is leading efforts to strengthen the cyber security management system for both normal and emergency situations. This includes the early detection and response to cyber-attacks, risk assessment for IT introduction and upgrades, and employee training.

(6) Risks from Adapting to a Carbon-Free Society

The Group maintains a coal-fired power plant and operates a range of businesses that use natural resources and energy in large quantities. In the event that stricter environmental regulations are introduced, situations arise that require new social responsibilities for environmental protections, and/or carbon pricing and other measures are introduced, there is the possibility that efforts to address any such situation through equipment and R&D investment, and existing business reassessment greatly affects the Group's business performance and finance condition. In addition, the possibility exists that ESG concerns and other non-financial information may have a significant impact on the Group's ability to procure financing.

Countermeasures
In the Medium-Term Management Plan 2025, the Group raised the target "achieve carbon neutrality by FY2050" as part of priority Issues "Contribute to mitigation of global warming." To achieve this target, the Group aims to decarbonize raw material/fuel inputs, develop/deploy green products, and accelerate technological development and commercialization of next-generation energy such as hydrogen and ammonia. The Group will also implement measures to improve the Tokuyama Factory's processes as well as promote the development and utilization of biomass fuels in Japan and overseas to achieve a 30% reduction in total GHG emissions (Scope1,2) in fiscal 2030 compared to fiscal 2019.
The Group set up a working group to take action on these risks, as well as to observe global affairs and trends, and to provide advice to management within the Environment Committee.

(7) Market Risk

In the event that the Group's products lose competitiveness due to such factors as changes in market needs, a failure in or lack of marketing, the emergence of new competitors, a failure in or obsolescence of development activities, and delays in responding to rapid technological innovation or overseas expansion, the possibility exists that the Group's business performance and financial condition may be significantly affected.

Countermeasures
In addition to conducting market research relating to the Group's products on an ongoing basis, we will work to strengthen exchanges of information and our relationships with our customers, while advancing the drafting and review of business plans that will facilitate responses to the risks of market fluctuations.

(8) Human Capital Risk

There is the possibility that retaining personnel necessary for future production activities will become difficult due to expected decline in the labor force as the birthrate decreases and population ages within Japan. In this event, there is the possibility that the Group's business performance and financial condition would be greatly affected. In addition, retaining personnel engaged in advanced materials R&D and DX or cyber security promotion could become difficult. In this event, achieving the Group's growth strategies would become difficult and, in turn, there is the possibility that any such situation greatly affects the Group's business performance.

Countermeasures
In addition to regular hiring in a planned manner, the Group also introduced a job-based hiring system as a mechanism to secure highly skilled professionals, and is actively engaged in hiring experienced individuals. The Group will also promote DX to advance labor-savings and streamlining, and will shift the resulting manpower surplus to business portfolio transformation. Moreover, the Group is expanding systems to support a balance between work and childrearing, as well as other systems to support work-life balance, and is pursuing comfortable, rewarding work, in an effort to retain the necessary personnel.

(9) Governance Risk

In the event information cannot be properly conveyed to management following an emergency, there is a risk that the Group management decisions will be delayed and will be unable to properly disclose information.
Insufficient governance-related disclosures may impair the Group in terms of transparency and accountability, creating the risk of damage to its corporate value.
The failure of corporate governance to function properly may damage the trust of shareholders, customers, and other stakeholders, and potentially cause the Group to struggle with business continuity. Incomplete succession plans may hinder the Group's ability to secure and develop the next generation of leaders, and potentially leading to a decline in management quality in the future.

Countermeasures
The Company has established a corporate governance policy, under which it increases the speed of decision making, defines responsibility, ensures the independence of the Board of Directors and strengthens its supervisory function, respects the rights and equality of all shareholders, appropriately engages in collaborative efforts with stakeholders, establishes proper disclosure channels and transparency, and engages in constructive dialogue with all shareholders. In particular, as part of an effort to strengthen the functioning of the Board of Directors, the Group strives to enhance the Board's effectiveness through evaluations carried out by third-parties each year. The Group has established a basic policy for preparing an internal control system, and along with strengthening internal controls in an effort to prevent the occurrence of incidents, the Group has established a system to enable a proper response in the event of an occurrence.
As far as human affairs and compensation for directors, executive officers, and other employees treated as officers are concerned, the Group has established a Nomination and Remuneration Advisory Committee to ensure transparency and objectivity.

(10) Financial Risk

The Group raises the financing necessary for its business operations by borrowing from financial institutions and issuing corporate bonds. In the event that borrowings or bond issuances cannot be carried out in a timely and appropriate manner due to changes in the financial environment or the status of external credit ratings, there exists the possibility that this could have a significant impact on the Group's financing activities. If the costs of financing were to increase due to changes in market conditions such as interest rates, there exists the possibility that any such situation could greatly affect the Group's business performance and financial conditions. The Group also exports products and imports raw materials, fuels, etc. in foreign currencies. There is a possibility that performance and financial content of the Group will be greatly affected by fluctuations in exchange rates. There is also the possibility that it will adversely affect the yen converted value of the financial statements of overseas consolidated subsidiaries when preparing consolidated financial statements.

Countermeasures
The Group takes in preparation for changes in the market environment such as interest rates, in principle, measures to mitigate risks by hedging transactions such as fixed rate contracts or fixed interest rate swaps. In addition, in preparation for unforeseen circumstances, we set up commitment lines as necessary to secure liquidity funds and strive to operate a sustainable business that takes ESG perspectives into consideration. The Group takes measures to mitigate risks associated with fluctuations in foreign currency exchange rates by balancing foreign currency denominated assets and liabilities, managing foreign exchange exposure, and hedging transactions through the use of such instruments as foreign exchange forward contracts.

(11) Stakeholder Response Risk

In the event of inappropriate information disclosure with respect to timing and details, the Group faces the potential for damage to its corporate value. In particular, malicious or serious incidents may lead to delisting from the stock exchange.
As a result of receiving malicious criticism and defamation, or being subject to rumors spread through mass media or social media, the Group may experience unexpected damage to its corporate value.

Countermeasures
The Corporate Governance Policy defines items under "Ensuring Appropriate Information Disclosure and Transparency," and the Group strives to establish systems for timely information disclosure, as well as to expand the scope of information disclosure, based on this Chapter and the Basic Policy on Information Disclosure. In the event of an incident, the Group has established a system for taking appropriate action, including forming independent committees as necessary.

(12) Security- and Occupational Safety and Health-Related Risk

The Group produces, handles, stores, and sells high-pressure gas, hazardous materials, and other such items, creating the potential for fire, explosion, and health injury due to toxic substance exposure in the event of leaks and inappropriate handling. Moreover, as part of production, maintenance, and corporate activities, the Group faces the potential for occupational accidents, including falls during work in high places, machine-caused amputations, and wedging accidents, as well as for health problems and mental disorders among employees. In addition, a significant portion of the Group's production facilities have been in operation for a considerable period of time, creating the potential that these will shut down for an extended period of time due to equipment aging. In addition, a significant portion of the Group's production facilities have been in operation for a considerable period of time, creating the potential that these will shut down for an extended period of time due to equipment aging.

Countermeasures
The Group prioritizes safety at all times, and promotes accident prevention and occupational safety and health activities. As a priority item, the Group advances efforts to enhance the level of safety management (strengthen accident and disaster prevention measures, enhance risk sensitivity, promote smart security), to reduce risk by identifying sources of risk and evolving risk assessments, to promote facility management (daily maintenance, scheduled maintenance), and to encourage healthy minds and bodies, in an effort to ensure safe, stable operations.

(13) Business Risk

The Group procures the raw materials and fuels essential to conduct production operations from various area in the world. Also, for some of its products, the Group uses special raw materials and materials which have a limited number of suppliers. In the event that a soaring market or resource nationalism causes the tight supply of raw materials and fuels or delays in delivery hinders the Group's production operations causing manufacturing costs to rise drastically, there is the possibility that any such situation greatly affects the Group's business performance and financial condition. In addition, in each of the business that the Group conducts, competitors are present all over the world. In the event that low-priced imported products flood the market or a price war breaks out between rival companies due to unforeseen circumstances, and that the situation continues for a prolonged period of time deteriorating the Group's profitability, there is the possibility that any such situation greatly affects the Group's business performance and financial condition.

Countermeasures
To ensure a stable and continuous supply of its products to customers, the Group believes it is important to maintain competitive advantage in areas such as quality and price. With regard to the procurement of raw materials and fuels, the Group engages in long-term, stable, low-cost procurement by combining, for example, medium- to long-term contracts and purchases on spot markets. At the same time, the Group secures multiple suppliers and investigates alternative raw materials and materials procurement options.

(14) Product Safety and Quality Risk

Flaws and defects during product design and production, as well as inappropriate or false indications, hold the potential to harm product safety, and to cause injury to customers and end-users. Moreover, the Group sells products broadly in Japan and overseas, creating the potential for discontinuation of sales in the event of non-compliance with domestic and overseas laws and regulations. As a result of these factors, if sales are suspended due to product liability issues or legal or regulatory violations, the possibility exists that the Group's business performance and financial conditions may be significantly affected.

Countermeasures
In order to ensure the Group delivers products and services that satisfy customers and consumers, and that provide peace of mind, and in order to ensure compliance with laws and regulations, the Group has established a quality management system based on ISO9001 and other quality management standards, and is committed to thorough quality management, product inspections, indication reviews, chemicals management, and management of chemical substances contained in products. In addition, the Group has taken out product liability insurance just in case product defects occur.

(15) Logistics Risk

The Group's raw materials and products are transported by ship, truck, railway, and/or air. These transport presents the risk of fire or leaks from cargo caused by damage coinciding with shaking and impact during cargo transport, or by accidents peculiar to the transportation.
In particular, leaks caused by accidents peculiar to the transportation hold the potential to cause injury or loss of life, or to affect land or marine environments, in the neighboring regions. Moreover, fires that occur during product storage in warehouses hold the potential to significantly affect product sales. In the event of major environmental accidents or incidents such as these, the possibility exists that the Group's business performance and financial conditions may be significantly affected.

Countermeasures
As far as accidents during cargo transport are concerned, the Group periodically conducts accident response drills in order to minimize the impact of such, holds regular safety meetings with the logistics companies in charge of transport, and seeks to strengthen the ability to discover and address issues.
Moreover, in order to reduce risk during transport, the Group revises shipping routes to ensure safety, and works with other companies in the same industry and external organizations in an effort to strengthen safety measures, including building mutual support networks and preparing response materials and equipment for emergencies.

(16) Environmental Risk

The Group runs the risk of having a negative impact on the environment and biodiversity at each stage of its business, from raw materials procurement to product manufacturing, distribution, sales disposal, and recycling. These risks include environmental accidents, the leakage of harmful pollutants due to improper handling, soil and groundwater contamination, complaints from local residents about noise and odors, and the illegal dumping and disposal of waste. There is also the possibility of effects on operations, such as reduced-volume production, due to the emergence of water risks that include the drying up of water sources.
If any of these serious environmental accidents or incidents were to occur, there is the possibility that they could greatly affect the Group's business performance and financial conditions.

Countermeasures
In addition to management in accordance with legal regulations, to prevent environmental accidents and pollution we are also implementing management based on voluntary control measures, regular monitoring, equipment calibration and other initiatives. To maintain water resources, we are doing our utmost to conserve the environment, as exemplified by having also set new targets for freshwater usage, managing water usage and water quality, and engaging in activities to protect biodiversity. As regards our supply chains, to fulfill our social responsibility and achieve sustainable procurement we have established and published Sustainable Procurement Guidelines and are also working to engage with our suppliers.

(17) Export Control-Related Risk

The Group exports its products to the United States, Asia, Europe, and elsewhere in the world, and is therefore required to comply with export control laws and regulations, primarily under the Foreign Exchange and Foreign Trade Act (FEFTA) of Japan.
In the event the Group is unable to properly address these laws, the possibility exists that the Group's business performance and financial conditions may be significantly affected due to criminal punishment and administrative sanction, as well as to loss of trust in the Company. Moreover, if exported products are diverted for military applications, any such situation may threaten international peace and security, leading to risks for both the Group and Japan's international relations.

Countermeasures
The Group has established a robust export control framework with a department dedicated to ensuring an understanding of and compliance with Foreign Exchange and Foreign Trade Act, international export control regimes, and other laws, and is strengthening export controls. Moreover, the Group holds regular security export control education and training programs for Group employees.
In addition, the Group receives from the Ministry of Economy, Trade and Industry proof its Security Export Control Internal Compliance Program (CP) and Exporter Profile and Self-management Check List (CL) have been accepted, and receives issuance of a Special General Bulk Export License, in an effort to ensure exports are in compliance.

(18) Business and Human Rights

The Group recognizes the potential for its business activities to have or to provoke an adverse effect on the human rights of various stakeholders, as well as the potential for the Group's businesses, products, or services to be directly involved in adverse effects on human rights. The Group procures raw materials and fuels essential to its production activities from all over the world, and sells its products on a global basis. In the event that the supply chain is directly or indirectly involved in human rights abuses, there is a risk that this may lead to a suspension of business, boycotts, business downsizing or withdrawal, and a deterioration in corporate value. In this case, the possibility exists that the Group's business performance and financial condition may be significantly affected.

Countermeasures
The Group places respect for human rights at the foundation of all of its business activities, and in order to fulfill its responsibility to respect human rights as a company, the Group formulated the Group Human Rights Policy in accordance with the UN Guiding Principles on Business and Human Rights on December 1, 2022, with which all executives and employees comply.
The Sustainability Committee takes the lead in promoting cross-organizational initiatives regarding human rights and other issues (supervised by the Compliance Committee from fiscal 2025). Especially, in the supply chain, where negative impacts on human rights are arguably more likely to occur, the Group has prepared and disclosed details of its Sustainable Procurement Guidelines, with which it requires suppliers to comply. At the same time, the Group conducts human rights due diligence initiatives, including engagement using self-assessment sheets.

(19) Settlement- and Accounting-Related Risk

The Group recognizes the potential for misleading investors and other stakeholders as a result of engaging in inappropriate accounting or financial reporting practices with respect to settlements and financial reports for business activities. Moreover, the possibility exists that the Group's business performance and financial conditions may be significantly affected as a result of paying administrative penalties, or suffering damage to its social credibility, in the event it failed to correctly declare its taxes.

Countermeasures
The Group has established the Financial Reporting Committee to ensure the reliability of settlement of accounts and financial reporting, and ensures the full accuracy of financial results disclosure details through deliberations by this Committee. At the same time, external audits by an auditing firm are used to verify the accuracy of financial reporting from a third-party perspective. In addition, having recognized that appropriate tax payments are an important social responsibility to be performed by companies, the Group engages in taxation compliance and awareness-raising activities under the Tokuyama Group Tax Policy.

(20) Statutory- and Compliance-Related Risk

In both its domestic and overseas businesses, there exists the possibility that the Group becomes the subject of a legal dispute or litigation. In the event that a major lawsuit is filed, there is the possibility that such a situation greatly affects the Group's business performance and financial condition. In addition, in the event that a violation of compliance by an employee or officer of the Group is uncovered, the possibility exists that the Group's management and other performance may be affected owing to such factors as a deterioration in its social credibility and brand image or payment of fines.

Countermeasures
The Legal Department and the Intellectual Property Department of the Groups take lead in day-to-day precaution against patent or contract disputes and litigation. To reduce compliance risks, the Group conducts statutory responsibility training for newly appointed Group company directors and Corporate Auditors, as well as various compliance training programs for employees on the Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade and on the Act against Delay in Payment of Subcontract Proceeds, Etc.
In addition, as far as incidents involving internal compliance violations, or the risk thereof, are concerned, the Group established an internal whistle-blowing desk help line that enables anonymous reporting and consultation without fear of adverse treatment, and implements proper measures and takes action, including fact confirmation, in response to reports and consultations.

(21) Labor Management-Related Risk

The Group recognizes the various labor management-related issues and risks among Group employees, including long working hours and harassment that may occur through business activities.
In the event a labor management-related issue occurs with respect to a "person" as the most important form of management capital for the Group, the relevant employee may suffer in terms of mental and physical health, and the possibility exists that the Group's business performance and financial conditions may be significantly affected, including lower motivation and productivity as an organization, as well as poorer social credibility and brand image as a Group, due to lawsuits.

Countermeasures
The Group engages in appropriate management practices and implements measures in order to ensure the mental and physical health and safety of Group employees, and to avoid legal entanglements. As far as appropriately managing working hours is concerned, the Group forms agreements between labor and management, and administers and monitors working hours using a labor management system.
The Group is also focused on health management, and has been included in the KENKO Investment for Health index for three consecutive years.
Moreover, as far as action on harassment is concerned, the Group established an internal whistle-blowing desk, the help line, and a personnel harassment consultation desk, and takes appropriate action in response to consultations. As a measure for preventing harassment, the Group engages in ongoing awareness-raising activities, including harassment prevention programs, on a Group-wide basis.