YAKULT HONSHA CO.,LTD.

The majority of the Group's net sales are derived from Yakult products using the "Lactobacillus casei Shirota strain," and this dependence is expected to increase further as overseas business expands. If competing dairy products gain traction or consumer perceptions of the safety and efficacy of probiotics change, this could have a significant impact on business results and financial position. The Group is addressing this through R&D investment to develop value-added products, but market acceptance of new products entails uncertainty.

The Group conducts manufacturing and sales activities across numerous countries and is exposed to various risks including political and economic changes, enactment or revision of laws and regulations, and difficulties in protecting intellectual property rights. In Europe, health claims for probiotics are not permitted, and there is a risk that similar regulations could spread to other countries. The Group plans substantial investment in new plants and sales facilities and equipment upgrades, but there is a possibility that expected growth may not be achieved, making investment recovery difficult.

The Group is subject to the Food Sanitation Act and other domestic and international laws and regulations. In the event of unforeseen circumstances, the Group could be forced to halt manufacturing and sales or recall products, incurring substantial costs. A decline in consumer trust in probiotic dairy products generally—not limited to the Group's own products but including those of other companies—could also adversely affect sales. While the Group is strengthening its quality control systems, complete elimination of risks, including reputational risk, is difficult.

Approximately half of domestic sales are generated through sales companies with no capital relationship with the Group, making it essential to maintain good relationships with these sales companies and with Yakult Ladies (door-to-door sales staff). In major overseas markets such as Thailand, South Korea, and Indonesia, there is also high dependence on home-delivery channels, and difficulty in securing personnel or maintaining relationships could significantly impede sales. In storefront channels, there are also concerns about intensifying competition from private brands and e-commerce.

Prices of raw materials for dairy lactobacillus beverages are affected by market supply and demand and exchange rate fluctuations, and rising crude oil prices also affect container and packaging materials and transportation costs. Domestically, labor costs are expected to rise due to a declining working-age population, while in emerging markets, labor costs are expected to rise alongside economic growth, which would also increase commissions paid to Yakult Ladies. If these cost increases cannot be absorbed through cost reduction efforts or price revisions, this could have a significant impact on business results and financial position.

The consolidated financial statements are denominated in Japanese yen, and the translation into yen of the financial position and results of overseas subsidiaries and equity-method affiliates is affected by exchange rate fluctuations. In particular, fluctuations in the Chinese yuan, Indonesian rupiah, Mexican peso, and Brazilian real could have a significant impact on business results and financial position. This foreign exchange exposure is expected to expand further as overseas business grows.

Business operations depend on information systems, creating a risk that equipment, software, or network failures, as well as increasingly sophisticated cyberattacks, could disrupt operations or lead to leaks of customer or confidential information. Although the Group has implemented security measures such as establishing a CSIRT, system management, and employee training, information leaks resulting from unforeseen events could lead to a decline in trust and substantial damage compensation costs.

Progressing global warming could have adverse effects on dairy cows and crops, create difficulties in procuring important raw materials, and give rise to water resource risks. The Group has formulated its "Environmental Vision 2050" and "Environmental Targets 2030," addressing four areas—climate change, plastics, water resources, and biodiversity—but if it becomes difficult to achieve global standard-level targets or response costs increase, this could have a significant impact on business continuity and creditworthiness.

Many products, including the Group's core Yakult products, use plastic containers, and growing international concern over the microplastics issue could lead to stricter regulations. The Group is pursuing initiatives such as converting to environmentally friendly containers, reducing plastic usage, and reusing packaging materials, but if it is unable to respond appropriately, restrictions on sales of key products or costs associated with regulatory compliance could have a significant impact on business results.

The Group procures part of its business funds through bank borrowings, and rising interest rates or deterioration in financial markets could increase interest expense or make it difficult to raise funds on desired terms. The Annual Securities Report explicitly states that borrowings are concentrated among specific financial institutions, indicating a lack of diversity in funding sources, and the impact could be significant if this concentration risk materializes.