Gates Industrial (GTES) Risk Analysis

Our operations, products and properties are subject to extensive foreign, federal, state and local laws and regulations around the world. These laws and regulations are complex, have tended to be stricter over time, and may be inconsistent across jurisdictions. In addition, existing laws and regulations may be revised, reinterpreted or more strictly enforced and new laws and new regulations may be adopted or become applicable to us. Complying with, or preparing to comply with, anticipated emerging and changing laws and regulations may cause us to incur substantial costs or require us to change our business practices (such as changing our production methods or materials used in our manufacturing processes or products). We cannot predict the form any such new laws or regulations will take or the impact these laws and regulations will have on our business operations. We are subject to numerous laws and regulations related to HSE, sustainability and product compliance matters. These laws vary by jurisdiction but generally govern emissions, wastewater discharges, material handling and transportation, waste management and disposal, product stewardship, biodiversity and packaging requirements, toxicity and hazardous substances, supplier due diligence and standards, and workplace health and safety, as well as the investigation and clean-up of contaminated sites. For example, we are subject to increasing legal requirements and global efforts to control emissions of carbon dioxide, methane, fluorinated and other GHGs in an effort to minimize the effect on climate change, which have the potential to influence the price of the energy and raw materials we purchase. This includes the recent enactment of the EU's Carbon Border Adjustment Mechanism, which is anticipated to increase the cost of production of certain of our products in the EU and could reduce the demand for such products. GHG regulations and carbon taxes could also reduce oil and gas production, which may negatively impact our sales in the Energy and Resources end market. In addition, many of our products are subject to evolving laws to restrict specific chemical substances in our products or impose labeling and other requirements, such as the EU's Registration, Evaluation, Authorization, and Restriction of Chemical Substances ("REACH") Regulation, and rising global concerns around microplastics, extended producer responsibility, plastic packaging or hazardous chemicals such as per-and polyfluoroalkyl substances, which could result in significant costs to us or limit our access to certain markets. Failure to comply with such laws and regulations could have significant consequences on our business and operations, including the imposition of substantial fines and sanctions for violations, injunctive relief (including requirements that we limit or cease the manufacture or sale of certain products) and negative publicity. We have incurred, and will continue to incur, both operating and capital costs to comply with HSE, sustainability and product compliance related and other laws and regulations, including costs associated with the investigation and clean-up of some of our current and former properties and offsite disposal locations. As the present and former operator of industrial properties that use and generate hazardous materials, we could be subject to additional liability for environmental contamination in the future, regardless of whether we caused such contamination. Additionally, most U.S. states have passed laws that regulate or limit the use of aftermarket products in certain types of repair work. These laws include requirements relating to consumer disclosure, owner's consent regarding the use of aftermarket products in the repair process, and the requirement to have aftermarket products certified by an independent testing organization. Additional legislation of this kind may be introduced in the future. Moreover, many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization. If additional laws prohibiting or restricting the use of aftermarket products are passed or if our certifications are revoked, it could have an adverse impact on our aftermarket products business. Certain organizations test the quality and safety of vehicle aftermarket products. If these organizations decide not to test a particular vehicle product, or in the event that such organizations decide that a particular vehicle product does not meet applicable quality or safety standards, we may incur additional costs to meet such standards or experience a decrease in sales of such products, including as a result of a decision to discontinue sales of such product or insurance companies deciding to discontinue authorization of repairs using such product. Such events could adversely affect our business. We are also subject to new and proposed laws and regulations in various jurisdictions, such as the EU and the U.K., that require increased public disclosure of data related to sustainability and ESG issues and mandate additional requirements for sustainability and ESG related marketing claims. In addition, certain customers, investors, employees and other stakeholders are increasingly focused on these matters and related disclosures and marketing claims. At the same time, regulators have increasingly expressed or pursued opposing views, legislation and investment expectations with respect to sustainability and ESG initiatives, including the proposal or enactment of "anti-ESG" legislation or policies. These opposing views may also be adopted by certain of our investors. Conflicting regulations and expectations across the jurisdictions in which we operate may create enhanced compliance risks and costs. These changing and inconsistent rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention to comply with or meet those regulations and expectations. For example, measuring and reporting information and metrics in compliance with the EU's Corporate Sustainability Reporting Directive, and monitoring updates to its implementation and effectiveness, has been, and we expect will continue to be, costly, difficult and time consuming. Our sustainability initiatives and goals could be difficult and expensive to implement, and we could be criticized for or subject to litigation related to the accuracy, adequacy, consistency or completeness of our sustainability disclosures and marketing claims or the scope or nature of our initiatives or goals or revisions thereto. Further, statements about our sustainability initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. If our sustainability related data, claims, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our sustainability goals on a timely basis, or at all, our reputation and financial results could be adversely affected and we could be exposed to litigation.

Our Bye-laws provide that in the event that any dispute arises concerning the Bermuda Companies Act or out of or in connection with our Bye-laws, including any question regarding the existence and scope of any bye-law and/or whether there has been any breach of the Bermuda Companies Act or our Bye-laws by an officer or director of the Company (whether or not such a claim is brought in the name of a shareholder or in the name of the Company), any such dispute shall be subject to the exclusive jurisdiction of the Supreme Court of Bermuda. This choice of forum provision may limit a shareholder's ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our directors and officers, which may discourage lawsuits against us and our directors and officers.

Changes in tax laws can and do occur. Changes to tax laws may require the Company to make significant judgment in determining the appropriate provision and related accruals for these taxes; and, as a result, such changes could result in substantially higher taxes and a significant adverse effect on our results of operations, financial conditions and liquidity. In addition, the Organization for Economic Co-operation and Development ("OECD"), which represents a coalition of member countries, has recommended fundamental tax reforms affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting ("BEPS") project, which in part aims to address international corporate tax avoidance. Countries have already enacted significant measures in this regard. The OECD has undertaken another project to address the tax challenges of the digitization of the economy. The broad objectives of this project are to reform international allocation of taxing rights by allocating a greater share of taxing rights to countries where consumers are located, regardless of the physical presence of a business ("Pillar One"), and to implement a global minimum tax ("Pillar Two"). In December 2022, the EU Commission adopted a Directive to implement Pillar Two in the EU and required all 27 EU member states to adopt local legislation during 2023 to implement Pillar Two rules, with effect in respect of the fiscal years beginning from December 31, 2023. The U.K. has implemented certain elements of the Pillar Two proposal with effect in relation to accounting periods commencing on or after December 31, 2023, and further elements were implemented with effect in relation to accounting periods commencing on or after December 31, 2024. The U.K. government announced as part of the 2025 Autumn Budget that further amendments would be made to the Pillar Two rules that have already been implemented. Such amendments are expected to largely take effect for accounting periods beginning on or after December 31, 2025. All sets of proposals are subject to exemptions and exclusions. Pillar One is generally intended to apply only to entities that are members of a consolidated group with an annual global turnover of at least €20 billion and profitability exceeding 10%, and Pillar Two is generally intended to apply only to entities that are members of a consolidated group with an annual revenue of at least €750 million. These legislative changes did not have a material impact in fiscal year 2025 and we do not expect a material impact in future years. Moreover, a number of further proposals from the European Commission have been issued or adopted that further enhance and move beyond the work on the BEPS project. First, the "Proposal for a Council Directive on Business in Europe: Framework for Income Taxation" ("BEFIT") (which seeks to produce a comprehensive solution for business taxation in the EU). was adopted by the European Commission on September 12, 2023. BEFIT aims to introduce a common set of rules for EU companies to calculate their taxable base while ensuring a more effective allocation of profits between EU countries. If adopted by the European Council, BEFIT is intended to come into force on July 1, 2028. BEFIT has the potential to alter taxing rights with the EU, and may include substantive changes to applicable tax rules. Second, the European Council has agreed to implement changes to the procedures used across the European Union in respect of withholding taxes (known as "FASTER"). Specifically, the changes are aimed to simplify the procedures for a refund or to apply for relief at the source; however, the changes could have broader implications. These withholding tax proposals are expected to come into effect from January 1, 2030. The details and timing of the implementation of BEFIT (if adopted) and FASTER and the impact on our group entities which operate in the EU are uncertain. These and other developments to the tax regime in the countries in which we operate could materially affect our tax burden and/or have a negative impact on our ability to compete in the global marketplace.

We are a company incorporated in the U.K. Current U.K. tax law provides that we will be regarded as being U.K. resident for tax purposes from incorporation and shall remain so unless (i) we are concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the U.K., and (ii) there is a tiebreaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction. Based upon our management and organizational structure, we believe that we should be regarded solely as resident in the U.K. from our incorporation for tax purposes. However, because this analysis is highly factual and may depend on future changes in our management and organizational structure, there can be no assurance regarding the final determination of our tax residence. Not being treated exclusively as a resident of the U.K. for tax purposes could result in adverse tax consequences to us.

The Company intends to conduct its affairs so that it is resident for tax purposes solely in Bermuda. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority, or as a result of any change in the conduct of the Company's affairs following a review by its directors or for any other reason, the Company could become, or be regarded as having become, a tax resident or otherwise subject to tax in a jurisdiction other than Bermuda. In such an event, the Company may have exposure related to unexpected tax liabilities that would have an adverse effect.

In connection with the Redomiciliation, the Company recognized a tax benefit from the reduction of a valuation allowance on certain foreign deferred tax assets that are expected to be used in future periods. This is not expected to affect the Company's cash taxes or adjusted net income per share. However, beginning the second quarter of 2026, the Company's effective tax rate decreased as a result, and is expected to be followed by an increase during the period in which the foreign deferred tax asset is utilized. As a result, the Company's results of operations may be negatively impacted during such period.

The Company is a Bermuda exempted company intended to be tax resident solely in Bermuda. Bermuda has no comprehensive income tax treaties and only a very limited number of special purpose tax treaties. Certain tax treaty benefits may or will not be available with respect to various intercompany distributions and other intercompany transactions or dispositions. This could adversely impact our ability to make intercompany distributions or engage in other intercompany transactions.

We purchase our energy, steel, aluminum, rubber-based materials, chemicals, polymers and other key manufacturing inputs from outside sources. We do not traditionally have long-term pricing contracts with raw material suppliers. The costs of these raw materials have been volatile historically and are influenced by factors that are outside of our control, including the imposition of tariffs which may be unpredictable. In recent years, the prices and availability of energy, metal alloys, polymers and certain other of our raw materials have fluctuated significantly, exacerbated by inflation and global disruptions and conflicts. If we are unable to pass increases in the costs of our raw materials on to our customers on a timely basis or at all, maintain current pricing, or are otherwise unable to offset these cost increases, our operating margins and results of operations may be materially adversely affected. Additionally, our businesses compete globally for raw materials and key production inputs. The availability of qualified suppliers and of key inputs may be disrupted by market disturbances or any number of geopolitical factors, including political unrest and significant weather events. Such disruptions may require additional capital or operating expenditures by us or force reductions in our production volumes. In the event of an industry-wide general shortage of certain raw materials or key inputs, or a shortage or discontinuation of certain raw materials or key inputs from one or more of our suppliers, we may not be able to arrange for alternative sources of certain raw materials or key inputs. Any such shortage may materially adversely affect our competitive position versus companies that are able to better or more cheaply source such raw materials or key inputs.

Labor is a primary component of operating our business. As of December 31, 2025, we had approximately 13,000 full time employees worldwide. Certain of our employees are represented by various unions under collective bargaining agreements, or by various regional works councils. We cannot ensure that future issues with our labor unions or works councils, or with the labor unions of our customers and vendors will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of labor conflicts. Furthermore, increased unionization, new labor legislation or changes in regulations has disrupted and could further disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies. Additionally, we have experienced, and may continue to experience, labor shortages, turnover and increased labor costs due to general macroeconomic factors. Any of these factors may have a materially adverse effect on us or may limit our flexibility in managing our workforce.

The markets in which we operate, or seek to operate, are subject to technological change and, in some cases, developing. Our long-term operating results depend upon our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change (such as artificial intelligence ("AI") and machine learning), and to customize certain products to meet customer requirements and evolving sustainability and industry standards. The development of new product introductions and product innovations may require significant investment by us, including investment in our workforce and in competing for talent. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change (including those related to the utilization of AI) or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands. If we are unable to adapt to these changes, our business and results of operations may be adversely affected.