Yushiro Inc.

More than half of the Group's net sales are derived from the automotive-related industry, and business performance is significantly affected by trends in the automotive-related industry in Japan, North America, South America, China, and Southeast Asia / India. Because the Group's mainstay product, Metalworking Fluids, is used in the manufacturing processes of engines, transmissions, and chassis components, a decline in usage per vehicle resulting from the spread of EVs could lead to a future contraction in demand. As countermeasures, the Group is working to reduce this dependence by expanding sales into the aircraft and medical device fields and by promoting new businesses such as vitamin B2 photocatalysts.

The Group conducts business both domestically and overseas, and its main customer base, the automotive-related industry, is affected by economic conditions in each country and region. An economic downturn or decline in demand in major markets, including Japan, North America, South America, China, and Southeast Asia / India, could affect the Group's financial position and operating results. The risk of concentration in specific regions is high, and simultaneous economic deterioration across multiple markets could have a significant impact on business performance.

In the field of Metalworking Fluids, there are globally operating overseas manufacturers, manufacturers whose parent companies are international oil majors, and numerous domestic competing manufacturers. New product development, sales promotion activities, and pricing measures by competitors could affect the Group's financial position and operating results. Competition with rivals that have advantages in scale and capital strength carries the risk of leading to price pressure and a decline in market share.

Most manufacturing raw materials are petrochemical products and natural oil and fat chemicals, exposing the Group to fluctuations in crude oil and naphtha prices, as well as geopolitical and foreign exchange risks arising from dependence on imports of animal and vegetable oils and fats. Russia's invasion of Ukraine, the prolonged conflict in the Middle East, concerns over chemical product supply due to rising demand in emerging countries, and restrictions on the use of specific raw materials due to natural disasters, accidents, or regulatory changes could destabilize procurement. In response, the Group is working to pass costs on to sales prices, review procurement methods, and secure global procurement sources; however, if procurement disruptions occur, business performance could be affected.

The ratio of overseas sales to consolidated net sales reached 61.6% in FY2026 (ending March 2026), and country-specific political, economic, and legal risks, as well as unforeseen litigation risks, exist in North America, South America, China, and Southeast Asia / India. The Group strives to maintain and strengthen its risk management and compliance systems, but if these systems fail to function adequately, the Group's financial position and operating results could be affected. In addition, if differences of opinion arise with tax authorities in relevant countries regarding transfer pricing taxation, there is a risk of additional taxation.

With the overseas sales ratio at a high level of 61.6% (FY2026, ending March 2026), fluctuations in foreign exchange rates directly affect the yen-converted amounts of overseas subsidiaries' profits and losses in the consolidated financial statements. In a yen appreciation phase, the performance of overseas subsidiaries could shrink when converted into yen, potentially adversely affecting the Group's financial position and operating results. The securities report does not describe specific hedging measures, and structural exposure to foreign exchange risk continues.

If the performance of companies acquired for business expansion purposes, such as U.S.-based Quaker Chem Inc. acquired in 2018, falls short of expectations at the time of acquisition, or if management resources cannot be utilized efficiently, goodwill impairment may occur, potentially affecting the Group's financial position and operating results. There is an inherent risk that anticipated synergies may not be realized due to post-acquisition integration processes or changes in market conditions.

If the profitability of fixed assets such as production equipment declines, the Group may be required to record substantial impairment losses. In addition, investment securities held for the purpose of strengthening relationships with business partners may incur valuation losses depending on stock market trends, potentially affecting the Group's financial position and operating results. There is a risk of asset value decline in both fixed assets and investment securities.

Although the Group operates a quality management system based on ISO 9001 certification, if unforeseen product quality defects occur, the Group's financial position and operating results could be affected by the occurrence of damage compensation claims or damage to social reputation. Because Metalworking Fluids are used in automotive parts manufacturing processes, quality defects directly affect customers' production lines, carrying the risk of large-scale compensation claims.

If waste disposal regulations are tightened due to amendments to the Water Pollution Prevention Act, the Waste Management Act, or other laws, additional capital investment may be required, potentially affecting the Group's financial position and operating results. In addition, although the Group takes measures to protect intellectual property rights such as patents and trademarks, unforeseen litigation involving third parties' intellectual property rights could also affect business performance. Continuous response to legal risks is required in both the environmental regulation and intellectual property domains.