Business Risks

 The Kuraray Group has established a Risk Compliance Committee under the direct control of the President for the purpose of appropriately managing critical management risks, ensuring compliance with laws and regulations as well as corporate ethics, and conducting fair business practice. Based on the Kuraray Group Risk Management Rules, each Group entity in Japan and overseas conducts risk self-assessment. After deliberation by the Risk Management and Compliance Committee, the President identifies critical management risks, designating a person responsible for each risk, with measures implemented to prevent and mitigate the risks. The Board of Directors monitors the progress of these measures.

〈Overview of Risk Management System〉

 Based on the above, and taking into consideration the results of risk analysis in the Group and the recent social environment and circumstances, we have designated the following as "Priority Issues" for fiscal 2024, and have implemented measures for each.

(Issue 1) 

Further enhance the level of confidential information management by further strengthening information security throughout the Group, thoroughly disseminating confidential information management rules, and monitoring the status of operations.

(Countermeasures)

To strengthen confidential information management on an ongoing basis, the Company restructured the Confidential Information Management Team into a permanent organization in January 2024. As well as establishing the operation of the highly secure data storage system which was launched in fiscal 2023 and expanding its functions, the Company began operating systems for the detection and automatic suspension of mass downloads.

(Issue 2) 

In order to mitigate the risk of occurrence of safety-related accidents, continue to implement measures to strengthen operations and facility management at overseas plants and objectively identify specific issues at the plants by and through the on-site audits by the Global Process Safety Management (PSM) Auditing Team taking into account the issues related to the safety management system at each overseas affiliate, and promote improvements.

(Countermeasures)

In addition to the safety audits of overseas chemical plants conducted to date by the relevant companies and business units, which began in fiscal 2019, the Process Safety Management (PSM) Audit Team comprising global in-house experts was launched in fiscal 2022 and is working to identify overseas safety risks and pursue countermeasures. In fiscal 2024, the PSM Audit Team conducted on-site audits of three (3) production bases, identifying issues and recommending rectification measures.

(Issue 3)

Further improve the accuracy and effectiveness of Business Continuity Plan (BCP) by steadily implementing the risk avoidance/reduction measurements developed for the products that are highly prioritized in BCP of respective business based on the result of reexamination of the procurement risks of raw materials, fuels, secondary materials and equipment, including commodity materials, from a supply chain perspective.

(Countermeasures)

Continuing from fiscal 2023, based on the results of analysis of priority production brands and the risks of disruptions to the supply of raw materials, fuels, and other resources in each business, the Company progressively developed and implemented risk reduction measures, starting with those resources that have the highest priority. In the analysis of the risks of supply disruptions for raw materials and other resources, due to changes in upstream supply chain trends, the analysis results were revised considering the most recent trends.

 In addition to the priority issues listed above and other matters related to the business and accounting conditions described in the Securities Report, the following are some of the major risks that management recognizes as having the potential to materially affect the financial position, operating results, and cash flows of the Group. Forward-looking statements in the text reflect the Group’s assessment as of December 31, 2024. The Group strives to mitigate these risks in its business activities against risks related to its overall business operations.

 The Kuraray Group has a diversified business portfolio, with products geared to a variety of uses and applications. Many of our products are specialty materials that are less susceptible to fluctuations in commodity markets. In recent years, our products are increasingly suited to growth fields on which the Group’s overall business performance is becoming more dependent. These fields include automotive applications (PVB film for windshields, KURALON™ for brake hose reinforcement, etc.), electrical and electronics (optical-use poval film for LCD panels, GENESTAR™ heat-resistant polyamide resin for connectors, etc.), the environment (EVAL™  EVOH resin for food packaging, activated carbon for water treatment and air purification, etc.),  and medical (dental materials, etc.). The Group is engaged in the development of superior products that contribute to the natural and living environment, digital transformation such as business model reforms and digitization of business processes through the use of IoT, and creation of innovation by linking internal and external resources. However, changes in the business environment, such as a shift in industry standards for end products, shorter product life cycles, and intensifying global development competition, may force us to downsize or withdraw from important businesses, or cause us to record large losses, such as impairment loss on fix assets.

 We manufacture products such as chemical products, synthetic resins, synthetic fibers and textiles out of key raw materials such as ethylene and other petrochemicals that are susceptible to fluctuations in the markets of crude oil and natural gas. In case market fluctuations exceed expectations, the Kuraray Group’s business results may be affected negatively due to the lag in passing on the cost fluctuations to product prices.
 In addition, to reduce the risk of not being able to procure key materials, the Group concludes long-term purchasing contracts and utilizes multiple suppliers. Nevertheless, the occurrence of accidents or disasters at suppliers of key materials, logistics disruptions, economic sanctions, or various regulations in Japan or other countries could have a negative impact on the supply of products.

The Kuraray Group is developing its business globally, and overseas sales account for more than 70% of our total sales. The Group has established regional companies in the U.S., Germany, China, Hong Kong, Singapore, Thailand, India, and Brazil, and collects risk information and analyze business trends in each country and region at all times. If a response is required across the region, we have a system for cooperation among the regional company, legal entity which in-house company is responsible for, and the relevant department at the headquarters. However, the Group's business performance may be adversely affected by contingencies such as large-scale epidemics, wars, riots, and terrorism in each country or region, trade wars due to national or regional conflicts, and unforeseen changes in local laws and regulations.
 Increased global geopolitical risks, such as the situation in Russia and Ukraine and the Middle East, may adversely affect our Group's business results due to sluggish demand, supply chain disruptions, price hikes of raw materials and fuels, and difficulties in procurement.

 The Kuraray Group has manufacturing facilities in Japan, Europe, North America, Asia and Australia, and most of them are large-scale chemical plants. In accordance with the Guiding Principles, “Safety is the Cornerstone of Everything We Do”, we have established a safety management system that we operate to prevent accidents and disasters (such as explosions, fires, and leaks of hazardous substances) and to minimize damage in the event of a disaster. In addition, the Group is taking risk countermeasures by decentralizing the locations of important production facilities and utilizing general insurance. The Group has also conducted risk assessments of severe disasters caused by climate change and is taking measures to mitigate the risks. However, serious accidents, environmental pollution, natural disasters, or large-scale epidemics could cause personal or property damage to employees or third parties, damage to business assets, or long-term production stoppage.
 Accidents and disasters at suppliers of raw materials and fuels, equipment and maintenance parts, and services may adversely affect the supply of the Group’s products.

 The Kuraray Group supplies many products that play an important role in the quality of end products, such as automotive, electrical and electronic materials, medical (dental materials, etc.), and food packaging (EVAL™, PLANTIC™ biomass-derived gas barrier material, etc.), and has introduced a quality management system mainly at each manufacturing site to improve quality. However, a large-scale product recall due to quality defects could result in damages and other losses that are not covered by product liability insurance, as well as a loss of customer trust and social credibility.

 In recent years, it is required to respect human rights, not only within the company, but also in its supply chain. The Kuraray Group, in its "Our Values," states that one of our core values is to respect all people involved in our corporate activities as unique and valuable individual. In 2024, the Group established the "Kuraray Group Human Rights Policy" to clearly state the Group's stance and responsibilities regarding respect for human rights, and is promoting initiatives to identify, mitigate, and prevent risks of human rights violations. However, if the Group's business activities were to have a negative impact on human rights, either directly or indirectly, the Group's business performance could be adversely affected due to a loss of customer trust or social credibility.

 “Our Commitment” states our business activities should adhere to principles of conduct in all our diverse interactions with society. The “Kuraray Group Code of Conduct” provides guidelines to implement the commitment in performing day-to-day work. The President has declared that we will comply with laws and regulations and “Our Commitment”. To share these principles and commitments among all Kuraray Group employees throughout the world, the Compliance Handbook has been distributed to all employees in Japan and overseas, that contains the declaration by the President and explanations of the “Kuraray Group Code of Conduct”. In addition, we have appointed compliance officers at plants, offices and group companies, and have organized regional compliance committees to address company-wide issues as well as those specific to each region.
 To ensure compliance with antitrust laws, the Group has established a global compliance program, such as regular review of the Antitrust Law Compliance Guidelines, establishing guidelines how to contact with competitors, pre-screening of transactions and meetings with competitors, seminars for directors and employees, internal inquiries on compliance, management of bidding information, and audit by Legal Department to the department that participate the bid, etc.
 Despite efforts to ensure compliance as described above, a serious violation of laws and regulations could result in a loss of customer trust and social credibility as well as liability for damages and fines, which could have a negative impact on the Group’s business performance.
 The Group operates globally and is subject to the various laws and regulations of each country. Major changes in laws and regulations, including future regulation change, could lead to additional costs to respond or restrict business activities, which could adversely affect Group business performance. 

 The Kuraray Group is subject to the risk of litigation and other legal proceedings with business partners and third parties in connection with its domestic and overseas operations. The Group’s business performance may be adversely affected in the event of a significant lawsuit or other legal action.

 The Kuraray Group has established the “Kuraray Group Environmental Policy” and complies with various environmental laws and regulations, and is continuously working to improve the environment such as countermeasures for global warming including GHG emissions reduction, prevention of chemical substances releases, and effective use of resources. The Group is also strengthening its risk assessment and countermeasures against extreme weather events and severe disasters brought by climate change. In addition, the Group has declared its support for the recommendations of the “Task Force on Climate-related Financial Disclosures “(TCFD) and is striving to expand information disclosure. However, if environmental pollution occurs due to an unexpected accident or natural disaster, or if environmental regulations are tightened, the Group’s business activities may be restricted or costs for countermeasures may increase, which may adversely affect business performance.

 The Kuraray Group has implemented a various security measures for its information systems and networks, which are the foundation of our business activities, and strengthened further information management system. However, in the event of a failure of information systems due to a disaster, cyberattack, or unauthorized access, or in the event that corporate or personal information is leaked, its business activities may stagnate and its reputation may be damaged, which could have a negative impact on the Group’s performance.

 The Kuraray Group has a number of businesses and products based on unique technologies. In the event of a serious infringement of our intellectual property rights or a dispute over our rights, or if the Group infringes on the intellectual property rights of other companies, the Group’s business performance may be adversely affected.

 The Kuraray Group believes that human resources are an important and indispensable management resource for the promotion of its business and sustainable growth and development. While promoting diversity and inclusion, we regularly conduct engagement surveys at domestic and overseas group companies, continuously review the workplace environment and personnel systems and compensation. We also provide a variety of education and training programs to ensure that we remain an attractive company where employees can grow and realize their potential and find fulfillment in their work. However, with the declining birthrate and aging of the workforce and the increasing mobility of employment, the Group's business performance may be adversely affected by stagnation of business activities in the event of recruitment difficulties, outflows, or inability to secure the necessary human resources.

 The Kuraray Group manufactures and sells its products in various regions, including Japan, Europe, North America, Asia, and Australia. In businesses where the Group produces in Japan and exports overseas, prices are affected by exchange rate fluctuations. On the other hand, in businesses that produce and sell products in overseas, procurement and sales prices may be different currencies and the value of assets and liabilities in foreign currencies are affected by exchange rate fluctuations. Although we take measures to mitigate risk through forward exchange contracts and other measures, foreign exchange fluctuations may adversely affect our group's business results.