Milbon Co., Ltd.

Deficiencies in the control of personnel, funds, and information, along with a decline in compliance awareness, pose a risk of misconduct occurring and impairing corporate value. In particular, if overseas subsidiaries have not established systems compliant with local laws and regulations, this could result in control deficiencies, legal violations, and the erosion of effective governance. This has been positioned as a company-wide risk for FY2026 (ending March 2026), with strengthening governance at overseas locations as a priority theme, and compliance training based on local laws is being conducted.

Cyberattacks such as unauthorized access and ransomware, as well as employee mis-transmissions and ID leaks, could result in the leakage of confidential information and personal data, leading to financial damage, loss of credibility, and substantial liability for compensation. There are also concerns about serious impacts on business continuity, including system outages, business disruption, and increased recovery costs due to data encryption. The company is addressing this through enhanced monitoring via SOC services, review of privileged ID management, strengthening backup systems, and continued security education for employees.

Soaring raw material and logistics costs pose a risk of increasing the cost of sales ratio and reducing profit margins. Rising raw material prices directly affect product costs and may necessitate price revisions, while increased domestic and international transportation costs also affect sales strategy and inventory management. The company is pursuing comprehensive cost optimization through cost reduction via review of formulations and product specifications, negotiation of bulk material purchases, and rebuilding of the global procurement network.

Deterioration in market or business conditions not anticipated at the time of investment decisions may cause deviation from investment plans, resulting in failure to achieve expected effects and potential asset impairment. For overseas business investments, political conditions or tensions in diplomatic relations may make business continuity difficult, creating risks that could lead to declines in sales and profit margins and deterioration in capital efficiency. Investment projects of ¥30 million or more are deliberated by the Investment Committee and resolved by the Board of Directors or Management Committee, with appropriate management ensured through continued performance reporting after investment completion.

Logistics disruptions caused by abnormal weather or changes in local conditions could lead to increased transportation days and costs and excess inventory, potentially causing disruption to sales networks or loss of sales channels. There is also a risk that changes in pharmaceutical regulations in various countries may necessitate formulation changes, resulting in increased disposal, stockouts, higher costs, and lost sales opportunities. The company is building a system for regular exchange of information with logistics companies and rapid switching of transport routes, while advancing early collection of pharmaceutical regulatory information and the transfer of production to overseas factories.

A decline in employee motivation and an increase in leaves of absence or turnover due to physical and mental health issues pose a risk of talent shortages and reduced productivity. If the company fails to keep pace with intensifying competition for talent and the diversification of values, the outflow of talented personnel could affect business continuity. The company is working to create an environment where employees can maximize their capabilities by providing training tailored to position and role, and by reviewing recruitment methods and training curricula.

Tensions in social conditions and diplomatic relations could cause human casualties or supply chain disruptions in countries and regions where business and production sites are located, potentially making business continuity difficult. There is also a growing risk that tariff increases in various countries could directly affect sales and profits. The company is reviewing information gathering and reporting systems in unstable regions to build a rapid response system, while also assessing the impact of tariffs and reviewing its cost structure.

Management errors in formulation changes or serious defects in the production process could cause abnormalities to skin or hair, potentially requiring large-scale voluntary recalls. Non-compliance with pharmaceutical regulations in various countries could lead to export suspensions and penalties for local subsidiaries, resulting in impairment of brand value and additional costs, with serious impacts on profitability and business continuity. Since FY2025 (ending March 2025), the company has strengthened its quality control personnel, enhancing quality control for products from overseas factories and trade shipments, managing deviations through the Quality Committee, and conducting regular GMP training.

Delays in new business development and research and development could result in missing the timing for launching new products in the market, making it difficult to recover development costs and worsening profitability. There is also concern that delays in updating system infrastructure and adopting advanced technologies such as AI could hinder improvements in operational efficiency and the sophistication of data utilization, resulting in the loss of medium- to long-term growth opportunities. The company is strengthening cross-organizational progress management systems, conducting early and multifaceted business feasibility assessments, and developing systems for introducing advanced technologies including AI utilization.

Failure to achieve sales targets for new products, and a decline in market share due to intensifying competition and price reductions in the hair coloring market, could result in failure to achieve the medium-term management plan. Impairment of brand value due to parallel imports and counterfeit product circulation, as well as declining demand for high-priced products due to economic trends, are also factors that could worsen asset turnover and profit margins. The company is promoting enhanced sales promotion activities through collaboration between the product development and sales departments, and branding activities through digital marketing based on its beauty platform strategy.