Shiseido Company, Limited

Deteriorating sentiment toward Japan, political instability, trade policy conflicts, or the occurrence of disputes in countries where the Company operates may adversely affect its product production, supply, and sales systems. This also includes the risk that passing on higher raw material costs resulting from a global rise in prices could reduce consumer purchasing intent and worsen profitability. As countermeasures, the Company is promoting optimization of sales balance across regions, strengthening the resilience of its global supply network, and establishing a company-wide crisis response framework. The risk level has increased compared to the previous consolidated fiscal year.

Delays in responding to changes in consumer income and spending intent driven by macroeconomic trends, and to the diversification of purchasing behavior in growth areas, may result in lost opportunities to competitors and sales/profit falling below plan. In particular, changes in demand structure in the Company's key markets pose a risk directly linked to achievement of the management plan, and the risk level has increased compared to the previous consolidated fiscal year. As countermeasures, the Company is promoting the clarification of growth areas where it can demonstrate competitiveness, defining category-specific strategies, and utilizing data and AI for demand forecasting and measure optimization.

There is a risk that the acquisition and retention of talented personnel will not proceed as planned, resulting in a shortage of personnel needed to realize the management plan, and the risk level has increased compared to the previous consolidated fiscal year. Amid intensifying global competition, securing DX talent and specialized personnel in particular is becoming increasingly difficult. As countermeasures, the Company is promoting a threefold increase in talent development investment by 2030 compared to 2025, the introduction of job-based employment, next-generation leader development through the "Shiseido Future University," and the establishment of competitive compensation levels.

If the Company fails to appropriately develop new products or change formulations of existing products in compliance with changes to and strengthening of pharmaceutical affairs regulations and other rules in each country, its technologies and cosmetics could become subject to regulation, significantly impacting its business plans and potentially causing a loss of trust from society and consumers. Given the nature of its business, which spans approximately 120 countries overseas, the Company must constantly respond to differing regulatory trends in each country. The risk level has increased compared to the previous consolidated fiscal year, and the Company has established a department within its global headquarters to monitor pharmaceutical affairs and other regulatory trends, strengthening its response through collaboration with regional pharmaceutical affairs departments, local industry associations, and outside experts.

If a system outage or information leak occurs due to a cyberattack or unauthorized access, this could result in disruption to production and sales operations, liability for damages to customers and business partners, and a decline in trust in the Company. As digital utilization expands, work styles diversify, and collaboration with external partners increases, the number of access points to information data is rising, increasing the risk. As countermeasures, the Company conducts monitoring through a global SOC referencing the ISO and NIST frameworks, strengthens defenses against external cyberattacks, and implements a three-stage response—prevention, detection, and post-incident response—to prevent leaks of confidential information.

If business structure reforms in each region and division do not proceed as intended, causing improvements in profitability and cash flow to stagnate, this could affect the achievement of the management plan targets of a 7% core operating margin in 2026 and 10% or more in 2030. There is also a compounding risk that growth in the cosmetics market could fall below expectations amid slowing economic growth in the Company's markets. As countermeasures, the Company is promoting accelerated sales growth through aggressive investment in priority areas, cost optimization, profitability improvement across all regions, and initiatives to improve ROIC.

As a global beauty company with a high proportion of overseas sales, a stronger yen could negatively impact the Company's business results when translating the local-currency reported figures of overseas affiliates into yen, and could also reduce net assets through the foreign currency translation adjustment account related to investments in overseas affiliates. Significant fluctuations in exchange rates also affect earnings through foreign-currency-denominated settlements associated with import and export transactions. As countermeasures, the Company promotes risk hedging measures such as appropriate forward exchange contracts and maintains a system to monitor fluctuations in major currencies and respond promptly.

If the speed of business model transformation and data standardization utilizing digital technology falls behind that of competitors, compliance risks and costs could rise, potentially leading to a decline in market share. In addition, risks are emerging related to information leaks, copyright infringement, and problems arising from inaccurate information generated through the use of generative AI, as well as the risk of turnover among DX talent. As countermeasures, the Company is strengthening AI investment, proposing personalized experiences utilizing customer information, building digitally optimized teams and developing talent, and promoting the acquisition of first-party data.

If the market or business environment deteriorates to a level not anticipated at the time of the investment decision regarding goodwill or intangible assets recorded through M&A, and future business plans are not achieved, impairment losses could arise, significantly impacting the Company's business results. For the Company, which operates numerous brands globally, the scale of goodwill and intangible assets is an important financial variable. As countermeasures, the Company conducts regular performance monitoring and reporting to the Board of Directors, and the Investment/Divestment Committee scrutinizes the details of large-scale transactions.

Economic factors such as exchange rate fluctuations, price increases, and changes in tariffs, as well as natural disasters or disruptions to suppliers' business operations or information systems, could hinder the procurement of raw materials and logistics, making stable production and supply difficult. The Company's globally deployed supply chain is also linked to geopolitical risk, making it prone to manifesting as a compound risk. As countermeasures, the Company is promoting optimization of its global manufacturing and logistics network, diversification of suppliers for key raw materials and securing emergency inventory, and optimization of the supply-demand balance through the advancement of its S&OP process.