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Message for shareholders (FY2019 2Q)

During the six-month period, in our chemicals business, we gained new markets in Vietnam and Southeast Asia, sales of semiconductor processing agents were strong, and sales proceeded solidly for professional-use cleaning agents. On the other hand, demand for textile processing agents, our mainstay business, weakened, particularly in China, due to such factors as a warm winter, US-China trade friction, and Chinese environmental regulations. In addition, a drop in sales of recording paper agents arose due to the protracted supply shortages of raw materials experienced by China since last year, and the chemicals business was also affected by the strong yen against Asian currencies.

In our cosmetics business, sales of our mainstay DEMI COSMETICS were firm thanks to the market expansion and new product development for the core haircare brand. However, DEMI KOREA felt the impact of the South Korean market environment,and in the ODM business of Yamada Pharmaceutical, sales dropped considerably due to the inventory related effect of a large customer.

As a result, the operating results of the first half of FY 2019, the final year of our medium-term business plan INNOVATION 19 were very disappointing, net sales were down 4.5% from the same period of the previous fiscal year, and ordinary profit was down 46.2%.

However the difficult external environment to continue in the second half of FY 2019, we are positioning the second half of FY 2019 as a crucial six-month period for the next medium-term business plan. We will steadily implement the company-wide management strategies outlined in the current medium-term business plan. Through such efforts, we aim to build a strong business foundation that will not be affected by a rapidly changing business environment.

We ask for your continued support looking forward.

EMORI Yasumasa