SHOEI YAKUHIN CO.,LTD.

Oleochemicals, the company's core products, are affected by natural fats and oils market conditions such as palm oil, exchange rate fluctuations, and poor harvests due to unfavorable weather. The company aims to maintain appropriate profit margins by revising selling prices in line with changes in purchase prices; however, in the event of significant fluctuations, business performance may be affected through changes in the margin and supply shortages in the Chemical Products Business, and fluctuations in profit margins in the Daily Necessities Business. In some industrial applications, there is also competition from petrochemical products, and changes in demand trends may also affect business performance.

Kao Corporation is a major supplier to and customer of the company group, with purchases from Kao accounting for approximately 40% of total purchases. If Kao makes significant changes to its sales strategy or if there are serious disruptions to product supply, there is a risk that the company group's business foundation itself could be undermined. While the company, as a major domestic agent for Kao's chemical business, maintains a policy of preserving and expanding this strong relationship, the high degree of dependence remains a structural risk.

As of the end of FY2026 (ending March 2026), the balance of investment securities reached ¥5,597,685 thousand (31.4% of consolidated total assets), of which Kao shares accounted for ¥4,293,153 thousand (24.1% of the same). A decline in the share price of held stocks would directly affect net assets and financial position, and a decrease in dividend income received (¥149,097 thousand in FY2026, of which ¥107,016 thousand was from Kao) would also affect earnings. As over approximately 30% of assets are concentrated in a specific stock, sensitivity to stock market fluctuations is high.

The company is strengthening its business expansion in Asian countries, including China and Thailand, but is exposed to risks such as unexpected changes in laws and regulations, terrorism, conflict, changes in political and social conditions, economic trends, exchange rate fluctuations, and differences in culture and business customs. In addition, since the company's major customers are overseas production bases of Japanese companies, business performance is affected by the overseas expansion trends of these companies. While the company continuously monitors the economic and political environment of each country and responds accordingly, it is difficult to completely avoid these risks.

The company is exposed to foreign exchange fluctuation risk in foreign currency-denominated transactions, and while measures to reduce risk, such as forward exchange contracts, are implemented, complete hedging is difficult. In addition, since the financial results of overseas consolidated subsidiaries are converted into yen when preparing consolidated financial statements, a strong yen environment creates downward pressure on business performance and financial position. Since the purchase cost of oleochemicals is also affected by exchange rate fluctuations, the company faces compound foreign exchange risk.

Companies whose main business is not oleochemicals also handle chemical products in this field, exposing the company to competition in terms of product lineup, quality, and price. While the company group seeks to differentiate itself by accumulating specialized knowledge, strengthening relationships with suppliers, developing new suppliers, and enhancing proposal activities, if these measures fail to be effective, business performance may be adversely affected.

Securing and developing personnel with advanced specialized knowledge is essential for sustainable growth, but there is a risk that changes in the employment environment and intensifying competition for talent could make it difficult to secure and retain the necessary personnel. Since the oleochemicals field is a highly specialized business area, securing substitute personnel may be particularly difficult.

Through its business activities, the company has opportunities to obtain confidential information related to customers' product development, and has established an information security management framework, including information security management regulations and a supervisory structure led by the officer in charge of information security. However, in the event that an information leak incident were to occur, the company group's credibility would be significantly damaged, and it could also face liability for damages.

Imported products in the Chemical Products Business and products manufactured by external contractors in the Daily Necessities Business are subject to regulation under the Product Liability Act. Although the company has product liability (PL) insurance, there is no guarantee that the insurance will sufficiently cover the amount of liability for damages. If a large amount of damages were to occur, it could have a material impact on the company's financial position and business results.

In the countries where the company operates, including Japan, China, and Southeast Asia, it is subject to various laws and regulations, including the Act on Pharmaceuticals and Medical Devices, as well as environmental regulations and licensing requirements. Significant changes or tightening of laws and regulations, or unexpected legal changes, could affect business performance through restrictions on business activities and the incurrence of additional costs. Overseas, there are also risks related to laws specific to each country, which could increase compliance costs.