Risk Factors

The Resonac Group faces risks that could adversely affect our future performance, financial position, and cash flows, and we are working to put in place an improved risk management system to minimize these risks. The details will be explained in the next paragraphs. Please note that these matters have been determined as of the date of submission of the securities report for the fiscal year ending December 2025 (March 25, 2026) and do not cover all risks relating to our group. We will also continue to closely monitor the impact of U.S. policies and the unstable political situations in Ukraine and the Middle East on our business.

1. Risk management initiatives

(1) Risk management system

The Group has established a risk management system following the ISO31000 guidelines to clarify the risks and their impact on business management and for the effective allocation of management resources. The Risk Management Committee, chaired by the CEO, is established to conduct cross-functional deliberations by top management, on the risk management system and the Group's key risks and countermeasures. The items discussed by the Risk Management Committee are deliberated on and approved by the Management Committee, and then reported to the Board of Directors, where directors assess the appropriateness and effectiveness of the risk management system and supervise the progress of its implementation. Risk owners, risk officers, and risk managers who are responsible for identifying risks in each division as well as for promoting our response to risk are assigned to domestic business divisions, business offices, and major group companies. At the same time, each organization under CXO (Chief X Officer) reviews and supports risk assessment and response measures for each division from a bird’s-eye view across the entire company, and has established a system to promote integrated risk management through collaboration between management and employees in the field.

(2) Risk categories and management policy

The risks managed by our company can be classified into external environmental risks, operational risks, and hazard risks.To achieve sustainable growth in corporate value, it is essential not only to focus on traditional “defensive risk management” that emphasizes safety and compliance, but also to adopt “offensive risk management” that encourages appropriate risk-taking. Accordingly, we will comprehensively assess risks and reflect them in our management strategy.

(3) Risk identification and assessment

Once a year, organizational units, such as divisions and groups, conduct comprehensive risk identification and assessment, including potential risks from business activities. The results are reviewed by the top management at each business unit, office, and group company, then registered in the system. We classify the registered risks based on frequency of occurrence and degree of impact, then rank highly significant and high-priority risks as important risks, report these to the Risk Management Committee, and discuss the important risks for the Group and their countermeasures.

(4) Identification and prioritization of group-wide risk themes

In addition to the annual “risk identification and assessment” (a bottom-up risk approach), which we have continuously implemented for many years, we introduced in 2024 a process led by members of the Management Committee to identify and update “group-wide critical risk themes” (a top-down risk approach). This process is reviewed and updated annually. Through the identification and prioritization of group-wide key risk themes and in-depth discussions among senior management, we plot key risks based on their likelihood of occurrence and potential impact on our business. These risks are then classified and prioritized as S-rank risks (the most critical risks to corporate management) and A-rank risks (important risks in achieving corporate objectives). With regard to these risks, S-rank risks are subject to the strictest monitoring and the immediate implementation of response measures, while A-rank risks are managed through regular reviews and the preparation of prompt response plans.

 

2. Substantial fluctuations in the performances of individual businesses

The Group manufactures and sells a wide range of products across its business segments, including Semiconductors and Electronic Materials, Mobility, Innovation Enabling Materials, Chemicals, and Crasus Chemicals (olefins & derivatives). The following are some of the anticipated risks in our main businesses, but risks are not limited to these businessess.

(1) Semiconductor and Electronic Materials

The Group’s products in the Semiconductor and Electronic Materials segment are used in mobile devices, data centers, power modules, IT infrastructure, electric vehicles and vehicles with advanced driver assistance systems. The demand for these products is significantly affected by changes in demand for end-products based on global macroeconomic and industry trends. Moreover, these markets have highly competitive businesses that are affected by rapid technological changes and price declines due to the deteriorating functionality of products. Further, the global supply chain network has been prepared to develop and provide products that meet market needs quickly and effectively but there is a possibility that the cost of raw materials, energy, and logistics will rise due to geopolitical risks, etc., and that the supply chain will be disrupted. As a consequence, the Group’s operating results and financial condition could be affected by significant variations in demand and competitive conditions, fluctuations in foreign exchange rates, or the occurrence of significant risks in the supply chain. For this reason, we strive to identify customer needs and market trends, develop new products and technologies, and improve manufacturing processes, while continually working to strengthen our supply chain management system to detect risks early on and to ensure a stable supply of products to our customers.

(2) Mobility

The Group is affected by trends in the global mobility market, such as the strengthening of regulations on fuel efficiency and CO2 emissions aimed at protecting the global environment, as well as the rise in geopolitical risks. The mobility market is a promising sector expected to expand in the medium to long term, as product development is required in areas such as powertrain electrification, weight reduction, component electrification, and　improvements in the safety and comfort of automobiles, driven by the realization of carbon neutrality, and the progress of CASE (Connected, Autonomous, Shared & Service, Electric). On the other hand, the competitive environment with competitors and new entrants is also intensifying, and in addition to the risk of delays in responding to changes in customer requirements and needs, such as the development of new technologies and products and shortening development lead times, new technologies and products may cause existing businesses to become obsolete, lose market competitiveness, and cause sales prices to fall. There is also a risk that the profitability of existing businesses will decrease due to the shrinking market for internal combustion engine vehicles caused by the shift to EVs. For these reasons, the Group's operating results and financial position may be affected by significant fluctuations in demand and the competitive environment. Therefore, by utilizing the material technology possessed by the Group, the Group will provide solutions such as materials and parts that significantly improve the basic mobility performance of "running, turning, and stopping," as well as modularization of these parts, thereby further promoting the expansion of adoption models among existing customers and the development of new customers.

(3) Chemicals

[Graphite Business: Graphite Electrodes] 

The Group manufactures graphite electrodes in North America, Europe, and Asia, suppling products worldwide. For Asia, our focus is mainly domestic. Under this business structure, if demand for graphite electrodes were to decline sharply due to significant downturns in the Japanese or global economy, an imbalance between supply and demand could arise. As a result, the Group may be unable to secure a sufficient spread between selling prices and raw material procurement costs, which could have an adverse effect on the Group’s operating results and financial condition. In addition, increased dependence on production and supply systems in specific regions may expose the Group to risks arising from changes in the business environment or operational issues in those regions, which could adversely affect the Group’s business operations. 

[Graphite Business: Carbon Anode Materials] 

The Group’s carbon anode materials are primarily sold for lithium-ion batteries used in electric vehicles (EVs) and hybrid vehicles, and may therefore be affected by a slowdown in the growth of the EV and hybrid vehicle markets. In addition, China is the Group’s principal source of raw materials for anode materials, and the supply chain may be affected by factors such as tighter export regulations imposed by China. In response to these risks, the Group is working to develop markets for stationary energy storage systems and consumer applications, as well as to diversify its sources of raw material procurement.

(4) Crasus Chemical (Olefins & Derivatives Business)

The Group purchases and imports a large amount of feedstock, including naphtha. When the price of naphtha or other types of feedstocks fluctuate due to a change in crude oil prices, a change in the supply-demand balance, or a currency fluctuation, and when we cannot secure sufficient spreads between the manufacturing cost and selling prices of products, the Group’s performance and financial position can be affected. Furthermore, earnings from petrochemicals largely depend on the supply-demand balance. Construction of large plants by competitors and the resultant oversupply as well as a sharp decrease in demand due to unfavorable changes in the Japanese or world economies can affect the Group’s performance and financial position. In addition, the amount of investment and expenditure necessary for the Group to cope with global movement toward carbon neutrality that aims to mitigate climate change may be affected if there is any change in the schedule for implementation of necessary countermeasures. To deal with these risks, the Group is stabilizing revenue, including by reviewing sales methods and by working to reduce costs.

(5) Global operations

The Group conducts manufacturing and sales activities in regions including Asia, North America, and Europe. Overseas business operations involve risks that differ from those associated with domestic operations, such as unforeseen changes in laws or regulations, shifts in political or economic conditions, and social disruptions caused by terrorism, armed conflicts, or wars. There is a risk that the prolonged unstable political situations in Ukraine and the Middle East could lead to further increases in raw fuel prices and logistics costs, as well as supply chain disruptions due to changes in the situation of international economic security. Such risks can become real and affect our overseas operations, resulting in an adverse impact on the Group’s performance and financial position.

(6) Mergers, acquisitions, capital tie-ups, business reorganization and restructuring

The Group implements mergers, acquisitions, capital tie-ups, business reorganization and restructuring at home and overseas to expand the scope of businesses and improve profitability. The Group undertakes careful due diligence for companies being considered as acquisition targets, and scrupulously verifies post-merger plans to mitigate risk. However, if changes in the business environment for the Group or companies that the Group invests in effectively prevent the desired results from being achieved, this could have a negative impact on the Group’s performance and financial position. The Group’s performance and financial position could also be affected if the Group restructures businesses, such as withdrawing from unprofitable businesses or reorganizing affiliated companies.

3. Unexpected fluctuations in financial position and cash flows

(1) Substantial fluctuations in exchange rates

For foreign-currency-based transactions centering on exports/imports, the Group makes best efforts to minimize exchange rate fluctuation risks, mainly through exchange contracts. In particular, a sharp appreciation of the yen against the US dollar and other currencies could weaken the price competitiveness of products exported from Japan to overseas markets, while a weaker yen could increase the price of raw materials that are imported. Both of these currency fluctuations could have a negative impact on the Group’s business performance. Exchange rate fluctuations can also affect the Group’s performance and financial position through the conversion of overseas subsidiaries’ financial statements into yen.

(2) Trends in financial markets and changes in the fund-raising environment

The trends in the financial markets and deterioration in the Group’s financial indexes can affect the Group’s fund-raising and interest expenses: for example, in the form of prompt repayment of a loan owing to the terms of financial covenants. In that event, the Group’s performance and financial position could be affected. In the event that the financial results, financial position, and financial indicators, etc. originally expected are not achieved, credit ratings may be reduced, which could in turn negatively affect the refinancing of existing debt and the terms for new borrowing. In response to these risks, we are working to strengthen the Group’s financial standing, as well as to secure liquidity through commitment lines and other agreements with financial institutions, to smooth out fluctuations in repayments and redemptions, and to take an effective approach to fundraising that balances fixed and variable interest rates, among other factors.

(3) Employees' severance indemnities

The Group’s employees’ severance indemnities and expenses are calculated based on various basic rates and the yield of pension assets used in pension calculations. Fluctuations in the current price of pension assets, trends in interest rates, and changes in the retirement benefit/pension systems can affect the Group’s performance and financial position.

(4) Accounting for impairment of fixed assets

The Group may incur additional losses from the impairment of fixed assets including goodwill, intangible assets, and land, due to lower profitability resulting from aggravation in the business environment, due to a considerable reduction in the current prices of land and other fixed assets. These losses can affect the Group’s performance and financial position. Further, the takeover of Hitachi Chemical Company, Ltd. led to an increase in the amount of goodwill and intangible assets. When the Group’s performance deteriorates, an impairment loss could occur and the Group’s operating results and financial condition could be affected. 

(5) Deferred tax assets

The Group’s financial statements include deferred tax assets in relation to temporary differences (differences between the assets/liabilities on the consolidated financial statements and the assets/liabilities in calculation of taxable income). The calculation of deferred tax assets is based on various projections for future taxable income. Thus, when actual taxable income differs from the projections or in case of a revision of the taxation system (including tax rates), it becomes necessary to revise deferred tax assets. That situation could affect the Group’s performance and financial position. 

4. Specific regulations

The Group’s businesses are subject to various restrictions as required by laws and regulations. The restrictions relate to industrial safety (such as the Law for Prevention of Disasters at Petroleum Complexes, etc.; the Fire Service Law;  the High Pressure Gas Safety Law; and the Industrial Safety and Health Act) and the environment and chemical substances (such as the Basic Environment Law; the Air Pollution Control Law; the Water Pollution Prevention Act; the Act on Waste Management and Public Cleaning; the Law concerning the Examination and Regulation of Manufacture; the Poisonous and Deleterious Substances Control Act, etc.). The Group observes these laws and regulations when conducting business. The Group shares information on laws and regulations that relate to manufacturing plants, and confirms the state of compliance when updating existing plants or building new ones. Nevertheless, in the event that the Group fails to observe any of the laws and regulations, the Group’s activities could be restricted. In case stricter regulations are introduced, resulting in higher costs, the Group’s performance and financial position can be affected.

5. Important lawsuits

While the Group makes best efforts to observe laws and agreements, the Group may be sued when conducting a wide range of businesses.

6. Others

(1) R&D

As a hybrid advanced material company combining midstream materials technology and downstream application technology, the Group focuses on achieving innovation through integration. The Group will continue to provide a broad range of solutions to the market, while focusing on research and development that strengthens existing businesses and creates new businesses. This will be accomplished by integrating three specific technologies: chemistry to synthesize for midstream materials, chemistry to formulate for downstream applications, and chemistry to think for evaluation/simulation, structural analysis, and computational science. However, in case the actual results materially differ from original plans, the Group’s performance and financial position could be affected.

(2) Intellectual property

The Group recognizes that intellectual property rights, such as industrial property rights and know-how, play an important role in the competitiveness of its business, and strives to acquire, utilize, and protect its own rights, as well as to respect the rights of other companies. However, if the Group is unable to acquire or utilize its own rights appropriately, or if its rights are infringed in an unfair manner, or if an event occurs in which the intellectual property rights of a third party are infringed, or if the Group's know-how, etc. is infringed in an unfair manner to a third party, its business activities may be impeded, and the Group's operating results and financial position may be affected.

(3) Quality assurance and product liability

The Group has established internal rules on quality assurance and quality control, as well as organizations for managing and promoting quality assurance. Furthermore, the Group has obtained certification under ISO 9001 standards to ensure strict quality control. However, in the event of a serious quality defect or being sued for product liability, the Group’s reputation could be damaged and the Group may be forced to pay compensation to customers. This could affect the Group’s performance and financial position. In response to these risks, the Group implements procedures, such as maintaining facilities for reliable process management, installing measuring equipment, providing operating manuals, and training employees. In addition to building a system to prevent defective goods from being shipped, the Group maintains manufactured goods liability insurance policies both in Japan and overseas to minimize the impact of risks that may materialize.

(4) Accidents and disasters

The Group is committed to securing steady and safe operations. The Group conducts regular inspections of manufacturing facilities in an effort to minimize any risk factors pertaining to the suspension of operations or accidents due to problems with manufacturing facilities. In the event of injury or damage to property due to an accident, a large-scale natural disaster, a cyberattack, etc., the Group’s reputation could be damaged. The Group may incur substantial costs in dealing with the situation and may lose business opportunities due to the suspension of production. This could affect the Group’s performance and financial position. To mitigate these risks, effective risk management, including risk assessment, is implemented to prevent and minimize damage from an accident.

(5) Impact on environment

The Group is committed to the principles of Responsible Care, which means that we are working to ensure the health and safety of everyone and to protect the environment from harm caused by chemical substances throughout their life cycles, namely, the development, production, distribution, use, and disposal of the products. In the event of causing impact on the environment, the Group’s reputation can be damaged. The Group may incur costs, including compensation, lose business opportunities due to the suspension of production, and/or pay compensation to customers. These factors can affect the Group’s performance and financial position. In response to these risks, the Group has implemented environmental risk evaluations after performing exhaustive risk assessments at every business location, and we are promoting safety at environmental sites. In addition, we have implemented a systematic program of inspections and repairs to prevent environmental pollution caused by age-related deterioration. Moreover, the need to respond to the demands of society in relation to environmental issues, which has been increasing steadily in recent years, as well as strengthened environmental laws and regulations could have a negative impact on the Group’s results of operations and financial position.

(6) Infectious disease pandemics

In the event of a global outbreak of infectious diseases, the operating results and financial position of the Group could be affected by suspended production at manufacturing plants and suspended activity at sales offices, etc. In response to a global outbreak of infectious diseases, the health of all employees of our Group and its partner companies is given the highest priority, and the CHRO division, which is in charger of planning and implementing measures for health management and occupational health, takes into account the opinion of the supervising industrial physician and coordinates with the Risk Management Department to alert employees and instruct them on infection prevetion measures. The Group will continue to pursue initiatives aimed at balancing the health of our employees and our business activities, including basic measures against infectious diseases.

 

(7) Impact of climate change

The Group is making sincere efforts toward achieving carbon neutrality by 2050.　The various products provided by the Group utilize fossil fuels in their manufacturing processes and generate greenhouse gas (GHG) emissions. Accordingly, the Group is implementing measures to achieve a 30% reduction in GHG emissions by 2030 compared with fiscal year 2013 levels (Scope 1 and Scope 2). As initiatives toward carbon neutrality through co-creation with customers are becoming increasingly important in business relationships, the Group is incorporating further improvements in efficiency and the development of products that contribute to energy conservation and carbon circulation into its business and technology strategies. In addition, the Group has completed the calculation of carbon footprints for its major products and is progressively advancing carbon footprint assessments at the technology development stage.

However, in addition to customer requirements, costs are expected to increase for assessment and response to the risk of transition to carbon neutrality such as external procurement of renewable energy, and the physical risks including and preparedness for nature disasters, and the laws and regulations of various countries that are becoming increasingly stringent, as well as capital investment.

Recognizing both these risks and opportunities as important management issues, in 2019 we endorsed the Task Force on Climate Change Disclosures (TCFD). Through scenario analysis, we assess the risks and opportunities that climate change poses to our company, consider and implement countermeasures, and are progressively implementing initiatives for each business to strengthen our resilience and disclose information. In 2023 we joined the GX League, established by the Ministry of Economy, Trade and Industry to reduce GHG emissions.

Furthermore, in June 2025, we submitted a letter of commitment to the Science Based Targets initiative (SBTi), an international initiative that encourages the setting of science-based, medium- to long-term targets for greenhouse gas reductions. We will continue to prepare for certification in two years' time and strive to reduce greenhouse gas emissions in line with SBTi's ideas.

*Please refer to the website for information disclosure in accordance with the request of the Task Force on Climate Change Disclosure (TCFD).

https://www.resonac.com/sustainability/environment/climate.html

 

(8) Respect for human rights

In 2021, the Group formulated our Human Rights Policy based on international norms, declaring respect for human rights as the foundation for business activities in all countries and regions where we operate. This policy has been included in Our Code of Conduct (revised in 2022) to ensure that all employees have their own standards. The business of the Group and all of our business partners, including suppliers, can directly or indirectly affect human rights for each “link” in the value chain—from product development through purchasing, manufacturing, distribution, use and final consumption to disposal.

We also started conducting human rights due diligence, such as conducting a human rights survey for employees within our Group, and conducted human rights training to address human rights risks associated with organizational management. In addition, in order to encourage all business partners, including suppliers, to comply with this policy, we launched an initiative through the Sustainable Procurement Guidelines (revised in 2022) and conducted a preliminary overseas risk survey. Furthermore, we are working to identify risks and provide remedies by establishing a contact point that is accessible to all stakeholders, including employees, business partners including suppliers, and local communities.

(9) Human resources

The Group aims to become a world-class functional chemical manufacturer and has identified “enabling the success of autonomous and creative talent and fostering a culture of co-creation” as one of its material sustainability issues with a view toward 2030. To address this issue, the Group believes it is essential to recruit, secure, and develop co-creative talent with strong capabilities in management and technology. However, competition for the recruitment and retention of highly skilled personnel is intensifying. Accordingly, the Group takes into account the impact that reduced efficiency and lower engagement resulting from long working hours may have both internally and externally. By ensuring appropriate monitoring of working hours and preventing excessive overtime, the Group promotes the management and maintenance of employees’ physical and mental health. At the same time, under its Purpose and Values, the Group seeks to enhance employee engagement and practice a culture of co-creation. In addition, the Group aims to match the talent required by the organization with individual employees’ skills, creating an environment in which employees can experience “happiness” through personal growth. To achieve these objectives, the Group has established key goal indicators (KGIs) and key performance indicators (KPIs) and conducts regular monitoring of progress.

(10) Supply chain

A good business relationship with suppliers is essential for the Group to achieve stable purchasing in order to continue doing business. However, due to illegal and antisocial activities, including a lack of respect for human rights and environmental protection, etc., at suppliers, it is anticipated that unfavorable situations could arise not only in our company but also in society. With the aim of reducing the occurrence of these situations and fulfilling our social responsibilities with others, we have prepared and published the Sustainable Procurement Guidelines, and we are asking suppliers to comply with these guidelines and use regular questionnaires and door-to-door surveys to assess their compliance. In addition, our company’s business activities could be affected by the suspension of suppliers’ operations or a disruption of distribution networks due to natural disasters, accidents, infectious diseases, etc. To minimize these impacts, the Procurement Division has developed a manual that specifies procedures for gathering information on the state of supplier damage in the event of an emergency and grasping the impact on our company’s business activities. Training for BCPs (business continuity plans) is based on this manual.

(11) Cybersecurity

If there were damage or information leaks due to cyberattacks on the Group’s internal systems or manufacturing facilities, the Group’s operating results and financial condition could be affected due to a decline in social credibility, the cost of countermeasures, and any suspension of production. To help prevent and mitigate these risks, we have implemented global standard security solutions that provide a defense network against cyber risks, which are becoming more sophisticated. At the same time, we have established the Group’s global standard operations for information security and have implemented improvements through education and monitoring to ensure complete information management and to take actions that minimize the impact of any incident.