Euglena Co.,Ltd.

In the joint venture construction project with PetronasT and Enilive S.p.A. for a commercial-scale biofuel manufacturing plant in Malaysia, construction delays, cost overruns, or changes to the financing structure may result in additional funding burdens. Even after operations commence, there is a risk that revenue may fall short of initial expectations due to equipment or operational troubles, deterioration in raw material or product market conditions, or sudden changes in foreign exchange rates and interest rates. The Group raised its equity stake to 15% in July 2025, and financing for the capital commitment corresponding to this equity stake has been completed.

The shareholders' agreement relating to Q-Partners, the holding company of the Kyusai Group, provides for exit mechanisms such as drag-along rights and put options exercisable by the co-investor. If these are exercised, additional fund raising or application of available funds may become necessary. In addition, borrowings related to the Kyusai Group are subject to financial covenants, and breach of these covenants may affect the Group's financial position, business results, and cash flows. If Q-Partners ceases to be a consolidated subsidiary, this would also affect the presentation of consolidated net sales, profit, and segment information.

The Group conducts corporate acquisitions and minority investments with the aim of expanding its business foundation, creating synergies, and entering new areas; however, the anticipated effects may not be achieved due to changes in the business environment, delays in integration, or failure to realize expected synergies. In such cases, impairment losses on goodwill or M&A-related intangible assets (such as customer-related assets), integration-related expenses, and additional funding burdens may arise, potentially affecting the Group's financial position, business results, and cash flows. Where share exchanges or similar transactions involve the issuance of new shares, dilution of existing shareholders' equity value may also occur.

Biofuel, feed, and fertilizer are commodity products, and the prices and supply-demand balance of both raw materials and final products are heavily influenced by market trends. If complex factors such as laws and regulations, geopolitical developments, foreign exchange rates, and weather change suddenly, or if the Group fails to appropriately control these fluctuation risks, business results may be affected. The Group seeks to mitigate risk through diversification of procurement and sales sources, foreign exchange hedging, and working capital borrowings.

Numerous laws and regulations apply to the Healthcare Business, including the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, the Pharmaceuticals and Medical Devices Act, the Health Promotion Act, the Food Sanitation Act, and the Food Labeling Act (Foods with Function Claims system), and unexpected legal amendments or changes in interpretation may necessitate new countermeasures. In particular, the Foods with Function Claims system has been tightened following amendments prompted by the beni koji (red mold rice)-related product incident, with stricter requirements for collecting health hazard information and reporting to authorities, which is expected to increase compliance costs. If a legal violation occurs, it may hinder business operations and affect business results.

In the Healthcare Business (food and cosmetics), should any problems arise with product quality or safety, this could have a material impact on business results. For food products, Yaeyama Shokusan has obtained FSSC 22000 certification and implements thorough risk management from raw material receipt through shipment, while supplements are manufactured at factories certified with Health Food GMP; however, revisions to the Foods with Function Claims system may require new safety measures. For cosmetics, a group company bearing manufacturing and marketing responsibility under the Pharmaceuticals and Medical Devices Act is responsible for quality control.

Processing of cosmetics and other products is mainly outsourced to TOA Corporation, resulting in a high degree of dependence on a specific outsourcing partner. Should the outsourcing partner change its business policy, experience a deterioration in its profit structure, suffer reduced supply capacity, encounter quality issues, or cease operations, this may affect the Group's business results. While the outsourcing model offers benefits such as fixed-cost reduction, concentration of management resources, and agile response to changes in the external environment, securing alternative supply sources could pose a challenge.

The Group conducts business based on its core technology encompassing autotrophic, heterotrophic, and photoheterotrophic cultivation methods for the microalgae Euglena; however, if competitors develop similar or cheaper alternative technologies, or if the Group is slow to improve its technology, business results may be affected. Additionally, if energy sources more advantageous than biofuel become widespread, there is a risk that substantial research and development investments may not be recovered. The Group strives to acquire intellectual property rights while also working to prevent infringement of third-party rights.

Overseas business expansion, centered on Asia, may entail foreign exchange risk, country risk, and the risk of losses exceeding the invested amount. In recent years, geopolitical risks have become apparent in various regions around the world, and there is a possibility that regional conflicts and wars may occur, intensify, or become prolonged, and that countries may implement trade policy measures such as import/export restrictions, tariff increases, or economic sanctions. Should these factors disrupt energy prices, foreign exchange rates, the trade environment, or the procurement and logistics of fuel and raw materials, this may have direct or indirect effects on the business environment and profitability.

Through its internet sales and genetic testing service businesses, the Group accumulates large volumes of customers' personal information (including genetic information), and should an information leak occur, this could result in decreased sales due to loss of trust and losses from damages claims. In addition, sales operations are highly dependent on computer systems and communication networks, creating a risk that system outages or malfunctions could impede business operations. While the Group has obtained Privacy Mark certification and conducts internal training based on personal information protection regulations, responding to external threats such as cyberattacks remains an ongoing challenge.