KNC Laboratories Co., Ltd.

The top 10 customers account for 68% of net sales (FY2026, ending March 2026), indicating a high degree of dependence on specific customers. If there are changes in transaction terms, contract termination, or a decline in demand for these customers' products, the impact on business results could be significant. The Company is working to mitigate this risk by focusing on developing new major customers.

The Company's business performance is heavily dependent on customers' research and development schedules and production plans, and there is a risk that sales could disappear if a customer's development plan is discontinued, suspended, or changed. This risk is an external factor beyond the Company's control, and it could also disrupt the recovery plans for capital investments. The Company strives to minimize this risk by closely monitoring customer trends through its sales activities.

The Company holds numerous licenses and permits, including a pharmaceutical manufacturing business license, a hazardous materials manufacturing facility permit, a psychotropic drug manufacturing/formulation business license, and a designation as a handler of stimulant drug raw materials. Violations of laws and regulations or procedural omissions could result in the revocation of licenses or business suspension orders. Applications and other procedures are also required under the Chemical Substances Control Law, the Industrial Safety and Health Act, and the Cartagena Act, and any omissions could result in guidance or sanctions from the relevant authorities. While the Company currently recognizes no facts that would constitute grounds for revocation, future impacts cannot be ruled out.

Key raw materials, including chemicals derived from crude oil and naphtha as well as solvents such as methanol, are highly dependent on the Middle East region, creating a risk of supply shortages or price surges due to geopolitical risk. There are also specialty raw materials for which no substitutes exist, and any procurement issues could disrupt production plans. If the Company is unable to pass on fluctuations in the prices of purchased raw materials to selling prices, this could also adversely affect business results.

Although products are manufactured in accordance with strict quality control standards, there is no guarantee that product defects or recalls can be completely eliminated, and a large-scale product incident could result in substantial costs and significantly damage the Company's reputation. There is also a risk of being held liable for damages due to deterioration, loss, or damage of raw materials or intermediates supplied by customers during storage or use. Given the nature of the research, development, and manufacturing support business, there is also a risk of declining profitability or technical troubles.

The Company conducts its operations in compliance with numerous regulations relating to chemicals, pharmaceuticals, agrochemicals, and genetically modified organisms, and changes in policy or interpretation could adversely affect its operations. If legal regulations concerning the environment and chemical safety are tightened in the future, this could result in new compliance costs. If regulatory trends under the Pharmaceuticals and Medical Devices Act shift in a negative direction with respect to outsourced pharmaceutical work, this could also directly affect the business.

The Company routinely handles customers' technical and business information related to product development under confidentiality agreements, and any information leakage could result in liability for damages as well as a decline in social credibility. There is also a risk of system troubles, data destruction, or information theft due to external cyberattacks, and hardware damage caused by earthquakes, fires, or other events could also affect business continuity. Although the Company conducts awareness education for officers and employees and strengthens security as appropriate, complete prevention cannot be guaranteed.

The Company sometimes makes large-scale capital investments to meet customer requirements, but there is a risk that changes to or discontinuation of a customer's development plans could result in expected revenues not being realized, disrupting recovery plans. For fixed assets grouped by business division (Functional Materials Business Division, Pharmaceutical Business Division, and Bio Business Division), significant changes in the business environment or deteriorating profitability could necessitate recording an impairment loss. The Company also holds interest-bearing debt with variable interest rates, creating a risk of increased financial burden due to rising interest rates.

Competition for hiring specialized engineers in fields such as organic synthetic chemistry and biochemistry is intense, and the Company may be unable to continuously acquire the necessary personnel, or existing personnel may leave for other companies. If the securing and development of engineers does not proceed as planned, this could hinder business development and affect business results. The Company continues to recruit new graduates and mid-career hires and works to develop engineers, but securing excellent talent remains a recognized challenge.

The organic chemicals research, development, and manufacturing business emits GHG through its supply chain, and the introduction of carbon pricing mechanisms such as a carbon tax could result in additional costs. There is a risk that business activities could be disrupted by the intensification of natural disasters due to climate change, as well as by earthquakes, storms and floods, infectious diseases, war, terrorism, and other events. Although the Company carries out maintenance and inspection of its manufacturing facilities, there is no guarantee that accidents such as fires, explosions, or leaks can be completely prevented, and if physical damage or human casualties occur, this could disrupt business continuity.