Coway operates an integrated risk management system to proactively identify and respond to key risks that may arise across our business. Dedicated teams in each area, including finance, investment, environment, labor, and information security, identify potential risks at an early stage, assess their likelihood and scope of impact, and develop tailored response measures. Identified risks are discussed from a company-wide perspective through the Business Leaders Meeting and the Monthly Management Meeting. Depending on severity, these risks are escalated to the Audit Committee or the ESG Committee for deliberation. The Board of Directors and its sub-committees regularly review the progress and performance of risk responses, and activate immediate escalation protocols in emergency situations to ensure rapid executive decision-making. We also run parallel feedback and monitoring structures to enhance the effectiveness of our management framework.

Financial risks refer to risks that may directly affect Coway's financial performance due to the unpredictability of financial markets and changes in financial structure. These include market risks such as foreign exchange and stock price fluctuations, liquidity risks concerning capital raising and debt-servicing capacity, credit risks stemming from counterparty default, and interest rate risks that escalate financing costs. Unmitigated financial risks can lead to margin compression, restricted cash flows, and weakened balance sheet soundness.

Market risks refer to the uncertainty that the value of financial assets or expected cash flows may change due to price movements in financial markets, including interest rate risks, foreign exchange risks, and other market price risks. Management regularly tracks movements in key financial variables such as interest rates and exchange rates, and analyzes their impact on corporate value. For interest rate risks, we maintain an optimal structure by adjusting the proportion of fixed-rate and floating-rate liabilities, while foreign exchange risks are managed through periodic assessment processes and reporting routines that enable swift responses to changes.

Credit risks are managed in a centralized manner across the entire enterprise. Beyond counterparty credit exposures arising from accounts receivable or binding contracts, credit risks can manifest across financial assets in general, including cash holdings, cash equivalents, derivative financial instruments, and institution deposits. Coway enforces a strict policy of transacting exclusively with banks and financial institutions maintaining a credit rating of A or higher from recognized credit rating agencies. For counterparties without official credit ratings, we evaluate creditworthiness across multiple dimensions—including financial soundness, historical transaction track record, and industry reputation—and establish credit exposure limits accordingly.

We proactively identify liquidity risks stemming from financial market volatility and model the quantitative impact of shifting funding conditions on our balance sheet, thereby maintaining an agile response framework. To ensure adequate operational liquidity, Coway secures sufficient undrawn credit facilities and tracks cash flow status in real time. Through this disciplined approach, we mitigate risks of financial covenant breaches or line-of-credit limit overruns. Our liquidity forecasting model comprehensively integrates cash flow plans, financial covenant requirements, and internal financial targets, alongside external macro-factors such as foreign exchange control regulations and regional legal constraints.

To deliver long-term value to our shareholders and investors and reduce funding costs, we maintain an optimal balance in our capital structure. Benchmarking industry peers, Coway manages capital using the debt-to-capital ratio as a key metric, and systematically monitors leverage indicators—including total debt to total capital and equity ratios—to preserve financial stability.

Strategic risks are risks associated with changes in the external business environment and corporate strategic decisions, which may adversely affect the achievement of Coway's long-term goals and vision. These include macro-environmental factors such as global economic fluctuations, shifts in the competitive landscape, changes in consumer needs and trends, and the emergence of new technologies and technological paradigm shifts. They also encompass potential losses arising when strategic initiatives—including M&As, strategic alliances, new business entries, product/technology roadmaps, capital allocation decisions, and regional footprint and localization strategies—fail to deliver targeted commercial or operational objectives.

Operational risks refer to direct and indirect risks that various internal and external factors may pose to operations during day-to-day business activities. Coway defines operational risks beyond simple productivity loss, encompassing systemic vulnerabilities such as process deficiencies; organizational, workforce, or system inefficiencies; and IT infrastructure failures and cybersecurity vulnerabilities. Furthermore, operational risks cover challenges in product R&D, quality assurance, order fulfillment, sales execution, supply chain disruptions, and asset management (inventory, equipment, and real estate facilities). We also manage issues across the ESG spectrum as part of operational risks, including climate change response, health and safety management, compliance with environmental regulations, recruitment and retention of human resources, and local community relations. Operational risks cover the broadest range of categories and have the highest likelihood of occurrence, making systematic management essential.

Compliance risks refer to the risks arising from failure to comply with laws, regulations, ethical standards, and internal policies. These risks comprise legal disputes and litigation, fair trade statutory breaches, environmental non-compliance, labor and human rights violations, and mandatory supply chain due diligence failures. Compliance risks may result in financial losses, legal penalties, business suspension or interruption, and reputational damage. Driven by evolving mandatory ESG disclosure frameworks and regulatory oversight, the boundary and materiality of compliance risks are steadily expanding. Additionally, reputational exposures resulting from suboptimal government and media relations are integrated into our compliance risk governance.

Internal accounting risks are risks arising from operating the internal accounting control system that affect the reliability and accuracy of our financial statements. These include accounting process errors, inadequacies or failures in the internal control system, accounting fraud, and violations of accounting-related regulations. Should internal accounting risks materialize, they can cause financial statement restatements, modified or qualified audit opinions, regulatory sanctions, and erosion of investor confidence, underscoring the critical necessity for proactive risk mitigation and preventive control mechanisms.

Driven by the expansion of our global operations and the growing complexity of international tax regimes, Coway regards full tax compliance as an essential foundation of financial soundness and corporate reputation. We systematically monitor potential tax exposure, including cross-border tax law disparities, transfer pricing regulations, and heightened global tax transparency mandates. Adhering strictly to the principle of paying taxes where economic value and profits are created, we uphold the highest standards of tax transparency.

Coway faithfully complies with the tax policies established by the government and fulfills our responsibilities as a member of society. We strictly adhere to all applicable tax laws and regulations, striving to foster transparent and equitable relationships with key stakeholders and local communities.