Kao : Annual Securities Report 2025 For the year ended December 31, 2025

Annual Securities Report

("Yukashoken Hokokusho")

(The 120th Fiscal Year)

From January 1, 2025 to December 31, 2025

Kao Corporation

This is an English translation of the original Annual Securities Report (extract) filed with the Director-General of the Kanto Local Finance Bureau via Electronic Disclosure for Investors' Network ("EDINET"), pursuant to the Financial Instruments and Exchange Act of Japan, for reference purpose only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

In this document, the term "the Company" refers to Kao Corporation and the term "the Group" refers to Kao Corporation and its subsidiaries. Some information in the original securities report in Japanese, such as "Part One. Company Information I. Overview of Company 1. Key Financial Data (2) Key Financial Data of the Company" and "V. Financial Information 2. Non-consolidated Financial Statements and Other Information," are not included in this English translation of the securities report.

Contents

Page

[Cover] 1

Part One: Company Information 2

1. Overview of Company 2

   1. Key Financial Data 2

   2. History 3

   3. Description of Business 5

   4. Subsidiaries and Associates 7

   5. Employees 10

2. Business Overview 13

   1. Management Policies, Management Environments and Issues to be Solved 13

   2. Approach to Sustainability and Related Initiatives 17

   3. Business Risks and Other Risks 44

   4. Management Analysis of Financial Position, Operating Results and Cash Flows 54

   5. Material Contracts 61

   6. Research and Development Activities 62

3. Information about Facilities 65

   1. Overview of Capital Expenditures 65

   2. Major Facilities 66

   3. Planned Addition, Retirement and Other Changes of Facilities 69

4. Information about Reporting Company 70

   1. Company's Shares and Other Information 70

   2. Acquisition and Disposal of Treasury Shares 75

   3. Dividend Policy 77

   4. Corporate Governance 78

5. Financial Information 122

   1. Consolidated Financial Statements and Other Information 123

      1. Consolidated Financial Statements 123

      2. Other Information 185

6. Outline of Share-related Administration of Reporting Company 186

7. Reference Information of Reporting Company 187

   1. Information about Parent of Reporting Company 187

   2. Other Reference Information 187

Part Two: Information about Reporting Company's Guarantor, etc 188

Independent Auditor's Report

[Cover]

Filed Document Annual Securities Report (Yukashoken Hokokusho)

Applicable Law Article 24, Paragraph 1 of the Financial Instruments and Exchange Act

Filed to Director-General of the Kanto Local Finance Bureau

Filing Date March 25, 2026

Fiscal Year The 120th Term (from January 1, 2025 to December 31, 2025)

Company Name Kao Kabushiki Kaisha

Company Name in English Kao Corporation

Name and Title of Representative Yoshihiro Hasebe, Representative Director, President and Chief Executive

Officer

Address of Head Office 14-10, Nihonbashi Kayabacho 1-chome, Chuo-ku, Tokyo

Telephone Number +81-3-3660-7111

Contact Person Yoshimasa Minegishi, Vice President, Financial Controllers, Global

Contact Address 14-10, Nihonbashi Kayabacho 1-chome, Chuo-ku, Tokyo

Telephone Number +81-3-3660-7111

Contact Person Yoshimasa Minegishi, Vice President, Financial Controllers, Global

Place Where the Filed Document is Available for Public Inspection

Tokyo Stock Exchange, Inc.

(2-1 Nihonbashi Kabutocho, Chuo-ku, Tokyo)

1. Overview of Company
   1. Key Financial Data

      Key Consolidated Financial Data of Group

      Term		116th	117th	118th	119th	120th
      Fiscal year ended:		December 2021	December 2022	December 2023	December 2024	December 2025
      Net sales	Millions of yen	1,418,768	1,551,059	1,532,579	1,628,448	1,688,633
      Income before income taxes	Millions of yen	150,002	115,848	63,842	151,024	169,846
      Net income attributable to owners of the parent	Millions of yen	109,636	86,038	43,870	107,767	120,081
      Comprehensive income attributable to owners of the parent	Millions of yen	161,686	125,437	80,809	155,475	147,930
      Equity attributable to owners of the parent	Millions of yen	965,137	972,061	983,658	1,066,776	1,064,077
      Total assets	Millions of yen	1,704,007	1,726,350	1,769,514	1,867,237	1,875,054
      Equity attributable to owners of the parent per share	Yen	2,036.66	2,091.20	2,116.01	2,296.69	2,352.49
      Basic earnings per share	Yen	230.59	183.28	94.37	231.94	260.30
      Diluted earnings per share	Yen	230.57	183.27	94.37	-	-
      Ratio of equity attributable to owners of the parent to total assets	%	56.6	56.3	55.6	57.1	56.7
      Ratio of net income to equity attributable to owners of the parent	%	11.6	8.9	4.5	10.5	11.3
      Price earnings ratio	Times	26.1	28.7	61.5	27.5	24.1
      Net cash flows from operating activities	Millions of yen	175,524	130,905	202,481	201,585	199,680
      Net cash flows from investing activities	Millions of yen	(67,232)	(74,911)	(109,302)	(45,902)	(69,767)
      Net cash flows from financing activities	Millions of yen	(141,573)	(139,311)	(79,983)	(104,578)	(175,134)
      Cash and cash equivalents at the end of the year	Millions of yen	336,069	268,248	291,663	357,713	323,282
      Number of employees [Separately, the average number of temporary employees]	Persons	33,507 [11,215]	35,411 [8,183]	34,257 [8,193]	32,566 [8,502]	31,514 [8,655]

      Notes: 1. International Financial Reporting Standards (IFRS Accounting Standards) are applied.

   2. Amounts shown are rounded to the unit used for presentation. The same applies hereinafter.

   3. Net sales do not include consumption taxes, etc. The same applies hereinafter.

   4. Numbers in parentheses in charts are negative. The same applies hereinafter.

   5. To standardize information disclosure globally, we have included full-time, indefinite-term, non-regular employees, etc. in the number of employees since the 117th term. The number of employees in the 117th term based on the criteria applied in the 116th term totals 32,895.

   6. The provisional accounting for business combination was finalized in the 119th term, and the figures related to the provisional accounting in "Key Financial Data" for the 118th term reflects the details of finalization of the provisional accounting.

   7. Diluted earnings per share from the 119th term is not listed since there are no potential ordinary shares.

      1. History

         June 1887 Opened Nagase Shoten, a Western sundry goods dealer - (Foundation) October 1890 Launched Kao Sekken (Kao soap)

         November 1922 Completed the construction of Azuma Factory (currently Tokyo Plant (Incubation Center Tokyo)) May 1925 Established Kao Sekken Nagase Shokai Co., Ltd.

         March 1935 Established Dai Nihon Yushi Co., Ltd. based on detached Azuma Factory

         May 1940 Established Nihon Yuki Co., Ltd. in Nihonbashi Bakurocho - (Date of foundation) September 1940 Completed the construction of Nihon Yuki's Sakata Factory (currently Sakata Plant)

         December 1944 Completed the construction of Dai Nihon Yushi's Wakayama Factory (currently Wakayama Plant) October 1946 Renamed Kao Sekken Nagase Shokai Co., Ltd. to Kao Co., Ltd.

         May 1949 Renamed Nihon Yuki Co., Ltd. to Kao Soap Co., Ltd. Listed on the First Section of the Tokyo Stock

         Exchange

         December 1949 Established Kao Yushi Co., Ltd. through the merger of Kao Co., Ltd. and Dai Nihon Yushi Co., Ltd. August 1954 Kao Soap Co., Ltd. absorbed and merged Kao Yushi Co., Ltd.

         December 1957 Completed the construction of a detergent factory on the premises of Wakayama Plant March 1960 Listed on the First Section of the Osaka Securities Exchange (delisted in March 2003) March 1963 Completed the construction of Kawasaki Plant

         September 1964 Established Kao Industrial (Thailand) Co., Ltd. December 1964 Established Kao (Taiwan) Corporation

         April 1965 Completed the construction of Industrial Science Research Laboratories (currently Wakayama Research

         Laboratories) on the premises of Wakayama Plant

         July 1965 Established Kao (Singapore) Private Limited (currently Kao Singapore Private Limited)

         August 1967 Completed the construction of Tokyo Research Laboratories on the premises of Tokyo Plant (currently Tokyo Plant (Incubation Center Tokyo))

         March 1970 Established Kao (Hong Kong) Ltd. November 1970 Established Sinor-Kao S.A. in Spain November 1974 Established Kao-Quaker Company, Limited

         March 1975 Established Quimi-Kao, S.A. de C.V. in Mexico December 1975 Completed the construction of Tochigi Plant January 1977 Established Pilipinas Kao, Inc. in the Philippines

         February 1978 Established Ehime Sanitary Products Co., Ltd. (currently Kao Sanitary Products Ehime Co., Ltd.) March 1978 Completed the construction of Tochigi Research Laboratories on the premises of Tochigi Plant May 1979 Established Molins-Kao S.A. in Spain

         April 1980 Completed the construction of Kashima Plant April 1984 Completed the construction of Toyohashi Plant

         February 1985 Acquired an equity stake in P.T. Dino Indonesia Industrial Ltd. (currently PT Kao Indonesia)

         September 1985 Established Kao's cosmetics sales companies at nine locations across Japan to expand the cosmetics (Sofina) business nationwide

         October 1985 Changed the trade name of Kao Soap Co., Ltd. to Kao Corporation

         May 1986 Acquired Didak Manufacturing Limited in Canada to make a full-fledged entry into the information related business

         October 1986 Established Guhl Ikebana GmbH in Germany

         July 1987 Acquired High Point Chemical Corporation in the U.S.

         August 1987 Established Kao Corporation, S.A. in Spain through the merger of Sinor-Kao S.A. and Molins-Kao S.A. April 1988 Established KAO (Southeast Asia) Pte. Ltd. (currently Kao Singapore Private Limited)

         May 1988 Acquired The Andrew Jergens Company (currently Kao USA Inc.) July 1988 Established Fatty Chemical (Malaysia) Sdn. Bhd.

         May 1989 Acquired Goldwell AG (currently Kao Germany GmbH)

         October 1989 Combined nine cosmetics sales companies across Japan to establish Kao Cosmetics Sales Co., Ltd. October 1992 Acquired Chemische Fabrik Chem-Y GmbH (currently Kao Chemicals GmbH) in Germany August 1993 Established Kao Corporation Shanghai

         March 1999 Withdrew from the information related business

         April 1999 Merged eight sales companies that distribute household products across Japan (Kao Hanbai Co., Ltd.)

         August 1999 Established Kao Chemicals Europe, S.L. in Spain as a company to control industrial products businesses in Europe

         December 1999 Established Kao Chemicals Americas Corporation as a company to control industrial products businesses

         in Americas, while liquidating High Point Chemical Corporation at the same time

         March 2002 Acquired KMS Research, Inc., etc. via Goldwell GmbH (currently Kao Germany GmbH) June 2002 Established Kao (China) Holding Co., Ltd. as a business holding company

         September 2002 Acquired John Frieda Professional Hair Care, Inc., etc. via The Andrew Jergens Company (currently Kao

         USA Inc.)

         March 2003 Established Kao Commercial (Shanghai) Co., Ltd. (separating the sales function of Kao Corporation Shanghai)

         July 2004 Converted Kao Hanbai Co., Ltd. into a wholly-owned subsidiary through share exchange

         October 2004 Demerged and transferred the commercial-use products businesses of each of the Company and Kao Hanbai Co., Ltd. to then-existing Kao Clean & Beauty Company, Limited, and then changed the trade name of the company to Kao Professional Services Company, Limited

         July 2005 Acquired Molton Brown Limited, etc. via Kao Prestige Limited in the U.K. (liquidated in November 2015)

         January 2006 Acquired shares of Kanebo Cosmetics Inc. and converted the company and its group companies into subsidiaries.

         April 2007 Merged Kao Hanbai Co., Ltd. and Kao Cosmetics Sales Co., Ltd. and changed the trade name of them to Kao Customer Marketing Co., Ltd.

         July 2009 Acquired a plant (manufacturing facilities, etc.) of Reichardt International AG via Kao Corporation GmbH (currently Kao Manufacturing Germany GmbH)

         April 2011 Established Kao (Hefei) Co., Ltd.

         June 2011 Completed the construction of Eco-Technology Research Center (ETRC) on the premises of Wakayama Plant

         April 2012 Established Kao (Shanghai) Chemical Industries Co., Ltd. April 2014 Established Kao Cosmetic Products Odawara Co., Ltd.

         January 2016 Kao Group Customer Marketing Co., Ltd., which took over the shares of Kao Customer Marketing Co.,

         Ltd., Kanebo Cosmetics Sales Inc. and others, commenced operations.

         September 2016 Opened Beauty Research & Innovation Center on the premises of Odawara Office

         January 2018 Kao Group Customer Marketing Co., Ltd. absorbed and merged Kao Customer Marketing Co., Ltd. and Kanebo Cosmetics Sales Inc.

         Acquired Oribe Hair Care, LLC via Kao USA Inc.

         August 2018 Acquired Washing Systems, LLC and others via Kao USA Inc.

         April 2022 The Company has moved its listing venue from the First Section to the Prime Market of the Tokyo Stock Exchange following the revision of the market classification by the exchange.

         November 2023 The Company, Kao USA Inc. and Kao Australia Pty. Limited acquired Bondi Sands (Bondi Sands Australia Pty Ltd and others).

         December 2024 Liquidated Kao (Hefei) Co., Ltd.

      2. Description of Business

         The Company and its subsidiaries and associates (consisting of 111 subsidiaries and seven associates) are engaged primarily in the manufacture and sale of products for the Global Consumer Care Business and the Chemical Business, as well as service operations ancillary to these businesses.

         The descriptions of businesses and the positioning of the Company and its subsidiaries and associates in these businesses are as shown below.

         Except for the "Other" business segment, the segmentation of the following businesses is the same as that stated in "V. Financial Information, 1 Consolidated Financial Statements and Other Information, (1) Consolidated Financial Statements Notes to Consolidated Financial Statements, 6. Segment Information."

         Additionally, the classification of reportable segments has been changed from the fiscal year ended December 31, 2025. For details, please refer to "V. Financial Information, 1 Consolidated Financial Statements and Other Information, (1) Consolidated Financial Statements Notes to Consolidated Financial Statements, 6. Segment Information."

         Business segment		Companies primarily responsible for the business
         Global Consumer Care Business	Hygiene Living Care Business Health Beauty Care Business Cosmetics Business Business Connected Business	Domestic	The Company, Kao Group Customer Marketing Co., Ltd., Kao Professional Services Company, Limited, Nivea-Kao Company Limited, Kanebo Cosmetics Inc., e'quipe, Ltd., and other 9 companies (a total of 15 companies)
         		Overseas	Kao (China) Holding Co., Ltd., Kao Corporation Shanghai, Kao Commercial (Shanghai) Co., Ltd., Kanebo Cosmetics (China) Co., Ltd., Kao (Taiwan) Corporation, Kao Industrial (Thailand) Co., Ltd., PT Kao Indonesia, Kao USA Inc., Oribe Hair Care, LLC, Kao Germany GmbH, Kao Manufacturing Germany GmbH, Molton Brown Limited, and other 45 companies (a total of 57 companies)
         Chemical Business		Domestic	The Company, Kao-Quaker Company, Limited, Showa Kosan Co., Ltd. (a total of 3 companies)
         		Overseas	Kao (Shanghai) Chemical Industries Co., Ltd., Kao (Taiwan) Corporation, Pilipinas Kao, Inc., Kao Industrial (Thailand) Co., Ltd., Fatty Chemical (Malaysia) Sdn. Bhd., Kao America Inc., Kao Specialties Americas LLC, Kao Chemicals GmbH, Kao Chemicals Europe, S.L., Kao Corporation, S.A., Washing Systems, LLC, and other 22 companies (a total of 33 companies)
         Other		Domestic	Kao Transport & Logistics Company Limited and other 4 companies (a total of 5 companies)
         		Overseas	Misamis Oriental Land Development Corporation and other 9 companies (a total of 10 companies)

         Notes: 1. Main products for each business segment are as described in "V. Financial Information, 1 Consolidated Financial Statements and Other Information, (1) Consolidated Financial Statements Notes to Consolidated Financial Statements, 6. Segment Information, (1) Summary of Reportable Segments."

         1. In the "Segment Information," service operations, etc. classified into "Other" are divided into the Global Consumer Care Business and the Chemical Business depending on the type of services provided.

         2. The companies engaged in multiple businesses are included in the number of companies in each business segment.

            The Group's business structure is as shown in the diagram below.

            [ Business segment]

            [Domestic]

            Kao Corporation Kanebo Cosmetics Inc.

            Hygiene Living Care Business, Health Beauty Care Business, Cosmetics Business, Business Connected Business

            Global Consumer Care Business

            [Overseas]

            Domestic users

Sales from sales companies in each

business and from manufacturing and sales companies

Sales from sales companies in each

business and from manufacturing and sales companies

Kao Group Customer Marketing Co., Ltd.

Kao Professional Services Company, Limited

Other 5 companies

Kao (China) Holding Co., Ltd.

Kao Commercial (Shanghai) Co., Ltd. Kanebo Cosmetics (China) Co., Ltd. Other 36 companies

*1 Showa Kosan Co., Ltd.

Kao (Taiwan) Corporation Other 5 companies

(Manufacturing and sales company)

Chemical Business

Logistics operations,

Kao Transport & Logistics Company Limited

*1 Other 4 companies

(incl. 3 consolidated subsidiaries)

Other*2

real estate management, etc.

Real estate management, etc.

*1 Misamis Oriental Land Development Corporation Other 9 companies

(Notes) No mark: Consolidated subsidiaries (111 companies)

*1: Associates accounted for using the equity method (7 companies)

*2: Other companies provide services, etc. to the Company and its subsidiaries and associates.

Manufacturing and sales companies

Sales companies

Products and raw materials

(incl. cases where the subject is part of a company)

1. Subsidiaries and Associates

   1. Parent Company Not applicable

   2. Consolidated Subsidiaries

      As of December 31, 2025

      Company name	Location	Share capital or investments in capital	Description of main businesses	Ratio of voting rights held (%)	Relationship with the Company
      					Concurrent positions as Directors, Audit & Supervisory Board Members, etc.	Long-term loans receivable	Business transactions	Lease of facilities, etc.
      Kao Group Customer Marketing Co., Ltd.	Chuo-ku, Tokyo	JPY10 million	Hygiene Living Care Health Beauty Care Cosmetics Business Connected and control of beauty consulting company for the Cosmetics Business in Japan	100.0	Yes	-	Buyer of products, etc.	Yes
      Kao Professional Services Company, Limited	Sumida-ku, Tokyo	JPY60 million	Business Connected	100.0	Yes	-	Buyer of products, etc.	Yes
      Kanebo Cosmetics Inc.	Chuo-ku, Tokyo	JPY7,500 million	Cosmetics	100.0	Yes	-	Buyer of products, etc.	Yes
      Kao Transport & Logistics Company Limited	Sumida-ku, Tokyo	JPY15 million	Logistics-related operations in Japan	*2 100.0 [66.5]	Yes	-	Outsourcee of logistics operations for products, etc.	Yes
      *1 Kao (China) Holding Co., Ltd.	Shanghai	CNY2,603,727 thousand	Control of subsidiaries and associates in the People's Republic of China, Cosmetics	100.0	Yes	-	Buyer of products, etc.	-
      *1 Kao Corporation Shanghai	Shanghai	CNY564,200 thousand	Hygiene Living Care Health Beauty Care Cosmetics Business Connected	*3 100.0 [15.0]	Yes	-	Supplier and buyer of products, etc.	-
      *1 Kao Commercial (Shanghai) Co., Ltd.	Shanghai	CNY1,348,490 thousand	Hygiene Living Care Health Beauty Care Cosmetics	*4 100.0 [100.0]	Yes	-	Buyer of products, etc.	-
      *1 Kanebo Cosmetics (China) Co., Ltd.	Shanghai	CNY672,638 thousand	Cosmetics	*5 100.0 [100.0]	Yes	-	-	-
      *1 Kao (Shanghai) Chemical Industries Co., Ltd.	Shanghai	CNY740,000 thousand	Chemical	*6 100.0 [10.0]	Yes	-	Supplier and buyer of products, etc.	-
      Kao (Taiwan) Corporation	New Taipei City	TWD597,300 thousand	Hygiene Living Care Health Beauty Care Cosmetics Business Connected Chemical	92.2	Yes	-	Supplier and buyer of products, etc.	-
      *1 Pilipinas Kao, Inc.	Philippines	USD91,435 thousand	Chemical	100.0	Yes	-	Supplier and buyer of products, etc.	-
      *1 Kao Industrial (Thailand) Co., Ltd.	Thailand	THB2,000,000 thousand	Hygiene Living Care Health Beauty Care Cosmetics Chemical	100.0	Yes	-	Supplier and buyer of products, etc.	-
      Fatty Chemical (Malaysia) Sdn. Bhd.	Malaysia	MYR120,000 thousand	Chemical	*7 70.0 [70.0]	Yes	-	Supplier of products, etc.	-
      *1 PT Kao Indonesia	Indonesia	IDR1,796,206 million	Hygiene Living Care Health Beauty Care	50.01	Yes	-	Buyer of products, etc.	-
      Kao USA Inc.	U.S.	USD4	Health Beauty Care Cosmetics	100.0	Yes	-	Buyer of products, etc.	-

      Company name	Location	Share capital or investments in capital	Description of main businesses	Ratio of voting rights held (%)	Relationship with the Company
      					Concurrent positions as Directors, Audit & Supervisory Board Members, etc.	Long-term loans receivable	Business transactions	Lease of facilities, etc.
      Oribe Hair Care, LLC	U.S.	USD8,182 thousand	Health Beauty Care	*8 100.0 [100.0]	Yes	-	-	-
      Kao America Inc.	U.S.	USD3,200 thousand	Corporate services to subsidiaries and associates in the United States, and holding company of Chemical Business in the United States	100.0	Yes	-	-	-
      Kao Specialties Americas LLC	U.S.	USD1	Chemical	*9 100.0 [100.0]	Yes	Yes	Supplier and buyer of products, etc.	-
      Washing Systems, LLC	U.S.	USD10	Chemical	*10 100.0 [100.0]	Yes	-	-	-
      *1 Kao Australia Pty. Limited	Australia	AUD152,690 thousand	Hygiene Living Care Health Beauty Care	100.0	Yes	-	-	-
      Kao Germany GmbH	Germany	EUR25,000 thousand	Health Beauty Care	100.0	Yes	-	-	-
      Kao Manufacturing Germany GmbH	Germany	EUR13,000 thousand	Health Beauty Care	100.0	Yes	-	Buyer of products, etc.	-
      Kao Chemicals GmbH	Germany	EUR9,101 thousand	Chemical	*11 100.0 [100.0]	Yes	-	Supplier and buyer of products, etc.	-
      Molton Brown Limited	U.K.	GBP516 thousand	Cosmetics	100.0	Yes	-	-	-
      *1 Kao Chemicals Europe, S.L.	Spain	EUR74,035 thousand	Control of Chemical Business in Europe, etc.	100.0	Yes	-	-	-
      *1 Kao Corporation, S.A.	Spain	EUR56,411 thousand	Chemical	*11 100.0 [100.0]	Yes	-	Supplier and buyer of products, etc.	-

      Notes: *1. The company is a specified subsidiary.

      *2. The company is 66.5% owned by Kao Group Customer Marketing Co., Ltd.

      *3. The company is 15.0% owned by Kao (China) Holding Co., Ltd.

      *4. The company is owned by Kao (China) Holding Co., Ltd.

      *5. The company is 92.1% and 7.9% owned by Kanebo Cosmetics Inc. and Kao (China) Holding Co., Ltd., respectively.

      *6. The company is 10.0% owned by Kao (China) Holding Co., Ltd.

      *7. The company is owned by Kao Singapore Private Limited, a subsidiary of Kao Corporation.

      *8. The company is owned by Kao USA Inc.

      *9. The company is owned by Kao Chemicals Americas Corporation, a subsidiary of Kao America Inc.

      *10. The company is owned by Washing Systems Intermediate Holdings, Inc., a subsidiary of Kao USA Inc.

      *11. The company is owned by Kao Chemicals Europe, S.L.

      1. Numbers in [ ] represent the ratios of voting rights held indirectly and are included in the ratios of voting rights held.

      2. Concurrent positions as Directors, Audit & Supervisory Board Members, etc. include Directors, Audit & Supervisory Board Members and employees of Kao Corporation.

      3. Kao Corporation has a total of 111 consolidated subsidiaries as it has 85 smaller consolidated subsidiaries other than the above.

   3. Associates Accounted for Using the Equity Method

      As of December 31, 2025

      Company name	Address	Share capital or investments in capital	Description of main businesses	Ratio of voting rights held (%)	Relationship with the Company
      					Concurrent positions as Directors, Audit & Supervisory Board Members, etc.	Long-term loans receivable	Business transactions	Lease of facilities, etc.
      Nivea-Kao Company Limited	Chuo-ku, Tokyo	JPY200 million	Health Beauty Care	40.0	Yes	-	Supplier and buyer of products, etc.	Yes
      Showa Kosan Co., Ltd.	Minato-ku, Tokyo	JPY550 million	Chemical	21.4	Yes	-	Supplier and buyer of products, etc.	-

      Note: Kao Corporation has a total of seven associates accounted for using the equity method as it has five smaller associates accounted for using the equity method other than the above.

   4. Other Subsidiaries and Associates Not applicable

2. Employees

1. Information about the Group

   As of December 31, 2025

   Name of segment		Number of employees (persons)	[Number of temporary employees (persons)]
   	Hygiene Living Care Business	8,499	[4,061]
   	Health Beauty Care Business	7,521	[2,591]
   	Cosmetics Business	9,331	[1,270]
   	Business Connected Business	841	[194]
   Global Consumer Care Business		26,192	[8,116]
   Chemical Business		4,068	[252]
   Corporate (common)		1,254	[287]
   Total		31,514	[8,655]

   Notes: 1. The number of employees refers solely to full-time employees of the Company and its consolidated subsidiaries (excluding the employees seconded from the Group (the Company and its consolidated subsidiaries) to outside the Group but including the employees seconded from outside the Group to the Group). The number in square brackets represents the annual average number of temporary employees, which is not included in the number of employees.

   1. We have included full-time, indefinite-term, non-regular employees, etc. in the number of employees.

   2. Temporary employees include part-time employees and employees on non-regular contracts hired for a definite period but exclude those dispatched from employment agencies.

   3. Corporate (common) refers to the number of employees belonging to administrative and other divisions that cannot be classified into a specific segment.

2. Information about Reporting Company

   As of December 31, 2025

   Number of employees (persons)	Average age (years)	Average years of employment (years)	Average annual salary (thousands of yen)
   7,761	40.6	16.7	8,654

   Name of segment		Number of employees (persons)
   	Hygiene Living Care Business	2,186
   	Health Beauty Care Business	1,793
   	Cosmetics Business	1,256
   	Business Connected Business	163
   Global Consumer Care Business		5,398
   Chemical Business		1,177
   Corporate (common)		1,186
   Total		7,761

   Notes: 1. The number of employees refers solely to full-time employees of the Company (excluding the employees seconded from the Company to outside the Company but including the employees seconded from outside the Company to the Company).

   1. We have included full-time, indefinite-term, non-regular employees, etc. in the number of employees.

   2. Average annual salary includes bonuses and extra wages.

   3. Corporate (common) refers to the number of employees belonging to administrative and other divisions that cannot be classified into a specific segment.

3. Labor Union

   Part of the offices, plants, laboratories and consolidated subsidiaries have organized labor unions.

   There are no particular matters to be noted regarding the relationship between the Company's management and each of the labor unions.

4. Indicators Related to Diversity

Indicators related to diversity for fiscal 2025 were as follows:

1. Disclosure based on the Act on the Promotion of Women's Active Engagement in Professional Life and the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members

   	Percentage of female employees in management positions (%)	Percentage of paternity leave taken by male employees (%)	Gender pay gap (%)
   			All employees	Employees	Temporary employees
   The Company	28.7	90.1	90.8	88.7	90.4
   Kao Group Customer Marketing Co., Ltd.	20.6	110.2	68.3	63.5	85.6
   Kao Professional Services Company, Limited	16.1	112.5	74.7	72.7	67.0
   Kao Transport & Logistics Company Limited	2.6	-	53.8	83.3	70.4
   Kao Sanitary Products Ehime Co., Ltd.	-	83.3	77.6	79.1	77.9
   Kao Beauty Brands Counseling Co., Ltd.	73.8	*	51.6	52.4	*
   e'quipe, Ltd.	63.3	100.0	62.1	61.9	47.8
   Kao Cosmetic Products Odawara Co., Ltd.	13.9	60.0	74.5	77.5	58.2
   Inogami Co., Ltd.	23.1	100.0	79.5	85.1	88.1

   Notes: 1. Employees include those who are regular employees and those in full-time indefinite-term employment who are non-regular employees.

   1. Temporary employees include part-time employees and employees on non-regular contracts hired for a definite period but exclude those dispatched from employment agencies.

   2. All employees include the employees and temporary employees.

   3. The percentage of female employees in management positions is calculated in accordance with the Act on Promotion of Women's Participation and Advancement in the Workplace. Employees on secondment are counted as employees of the companies to which they are seconded.

   4. The percentage of paternity leave taken by male employees is calculated as follows based on the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members, as the ratio of employees who have taken childcare leave and childcare-related leave. Those seconded to outside each company are counted as the employees of the companies they are seconded from.

      The number of male employees who took their first leave associated with childcare in 2025 ÷ the number of male employees who had a child in 2025 × 100

      The Company has introduced a paid childcare leave system, which is subject to the calculation of the percentage of taking paternity leave, and all employees who had a child are required to take the leave. In calculating the percentage of taking paternity leave based on the law, the total percentage is not necessarily equal to 100% since the range of eligible employees in the numerator and denominator may differ due to the difference between the fiscal year and the deadline for taking such parental leave or paternity leave.

   5. The asterisk (*) denotes that there are no applicable male employees.

   6. The gender pay gap represents the ratio of female employees' wages to male employees' wages. There is no difference in wages for the same work, and this is due to the difference in the composition of the number of workers by grade. The wages for those seconded are calculated by the companies to which they are seconded.

2. Information about the Group

   	Percentage of female employees in management positions (%)	Percentage of paternity leave taken by male employees (%)	Gender pay gap (%)
   The Company and its consolidated subsidiaries	34.0	*	89.1
   The Company and its domestic consolidated subsidiaries	27.7	92.7	73.1

   Notes: 1. Employees include those who are regular employees and those in full-time indefinite-term employment who are non-regular employees.

   1. The percentage of female employees in management positions is calculated in accordance with the Act on Promotion of Women's Participation and Advancement in the Workplace. Employees on secondment are counted as employees of the companies to which they are seconded.

   2. The percentage of paternity leave taken by male employees is calculated as follows based on the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members, as the ratio of employees who have taken childcare leave and childcare-related leave. Those seconded to outside each company are counted as the employees of the companies they are seconded from.

      The number of male employees who took their first leave associated with childcare in 2025 ÷ the number of male employees who had a child in 2025 × 100

   3. The asterisk (*) denotes that the percentage of paternity leave taken by male employees at overseas subsidiaries and associates is not presented as it is not calculated.

   4. The gender pay gap represents the ratio of female employees' wages to male employees' wages. There is no difference in wages for the same work, and this is due to the difference in the composition of the number of workers by grade. The wages include base salaries and incentives including bonuses. The wages for those seconded are calculated by the companies to which they are seconded.

For details, please refer to "II. Business Overview, 2 Approach to Sustainability and Related Initiatives, (3) Human Capital."

1. Business Overview
   1. Management Policies, Management Environments and Issues to be Solved

      Forward-looking statements contained in this section are based on assumptions that management believes to be reasonable as of the filing date of the Annual Securities Report and may differ significantly from actual results due to various factors.

      1. Basic Management Policies

         The Group's purpose (social significance) is to realize a Kirei World in which all life lives in harmony. Through wholehearted "Yoki-Monozukuri*" that considers the perspective of consumers and customers, we aim to make contributions to realizing a bright future for people all over the world and a sustainable society in which people can live in harmony with the Earth.

         The Kao Way, our corporate philosophy, is shared by all members of the Group and put into practice daily as the basis for our way of thinking and actions. It has been our guiding principle over the past 130 years as we have developed our business while responding to the changing times and focusing on the areas of cleanliness, beauty, and health.

         Since issuing the Kao Environmental Statement in 2009, we have continued to pursue management that places emphasis on harmony with nature and society. In recent years, we have further deepened our initiatives to address social issues and have linked these efforts to the enhancement of our future competitiveness and profitability.

         Furthermore, amid growing uncertainty in the social and economic environment due to factors such as climate change and rising geopolitical risks, companies are required not only to achieve short-term results but also to maintain management capable of continuously creating value over the long term.

         Through investments in technology, manufacturing, and human capital, the Kao Group will position the realization of a sustainable society as a source of competitiveness and connect it to improvements in profitability and capital efficiency. We believe that these initiatives are not merely non-financial ideals, but rather the foundation for generating future financial results.

         Under our corporate slogan, "Kirei-Making Life Beautiful," we will establish a virtuous cycle that creates both financial results and returns to stakeholders by achieving a balance between social usefulness and economic value, thereby striving for the continuous enhancement of corporate value.

         *Yoki-Monozukuri: The Kao Group defines Yoki-Monozukuri as a strong commitment by all members to provide products and brands of excellent value for consumer satisfaction. In Japanese, "yoki" means good or excellent, and "monozukuri" means making or craftsmanship.

      2. Medium- to Long-term Management Strategies and Target Management Metrics

         1. Long-term Management Strategy

            The Group's vision for 2030 balances the pursuit of both sustained profitable growth and contributions to the sustainability of society, taking the aim of making Kao a company with a global presence a step further to make Kao a company with a global presence, valuable to society.

            Under the Mid-term Plan "K27," we have worked to build a foundation for sustainable growth through structural reforms, a review of our business portfolio, and management that emphasizes capital efficiency. Through these initiatives, the Kao Group is transitioning to the next stage of growth.

            Going forward, based on the management foundation being established under "K27," we will move into a phase in which we decisively capture growth by concentrating management resources in areas of high social necessity where we can best leverage the Company's strengths. At the core of this approach is the concept of "Global Sharp Top*," through which we provide differentiated value by addressing socially significant needs with Kao's unique technological capabilities and "Yoki-Monozukuri."

            Our proprietary technological platform, including precision interfacial control technology, enables us to achieve both environmental impact reduction and high value addition, and serves as a source of competitive advantage in the global market. In addition, by leveraging scientific marketing, digital technologies, and AI, we will enhance the quality and speed of decision-making from research and development through business operations, thereby further improving profitability and capital efficiency.

            Guided by the management principle of "Maximum with Minimum," which seeks to create maximum value with minimum resources, we will realize long-term growth and continuous enhancement of corporate value as a company that is indispensable to a sustainable society.

            * Global Sharp Top: Contributing as global No.1 to addressing the critical needs of customers with leading-edge solutions

         2. The Mid-term Plan

            
            
            
            
            

            • Progress during fiscal 2025 and future plan

              In the fiscal year under review, building on the results of the large-scale structural reforms implemented through the previous fiscal year, the Kao Group entered a year in which it fully rolled out its growth strategies. Following the momentum in fiscal 2024, when key indicators of the Mid-term Plan "K27," including Return on Invested Capital (ROIC), Economic Value Added (EVA), operating income, and sales outside Japan, exceeded the plan, we worked in fiscal 2025 to solidify these results and transition them into sustainable growth.

              Within the Growth Driver areas*, in the Cosmetics Business, we expanded marketing investments centered on the six priority brands and advanced the global rollout of high-value-added products. As a result, progress was made in achieving both sales growth and substantial improvement in profitability. In the skin protection businesses, product development tailored to regional market environments and demand trends proved effective, leading to improvements in brand recognition and the expansion of product lineups. In the Chemical Business, stable growth was maintained by strengthening supply systems in key markets and promoting the sales expansion of high-value-added products. In the Stable Earnings areas*, the Hygiene Living Care Business performed steadily, mainly in the domestic market. In particular, within the Fabric Care and Home Care Business in Japan, market-creating new value proposals and continuous product improvements expanded a customer base, resulting in increases in sales and market share. Through the enhancement of product value, strong brand power, and ongoing product improvements, we have maintained high profitability and cash flow generation, thereby supporting investment in the Growth Driver areas. In the Business Transformation areas*, structural reforms and brand rebuilding progressed, particularly in the Hair Care Business. Premium-priced products gained strong support from consumers, contributing to enhanced brand value and improved profitability. In addition, by advancing and accelerating development processes through the use of DX, we have enabled the continuous introduction of high-value-added products, leading to improvements in the sales mix. With regard to human capital investment, we continued focused and well-balanced investments to maximize employee vitality and expertise, while strengthening swift decision-making and execution capabilities through a scrum-type management approach. In addition, we have promoted business creation through co-creation with external partners, working to maximize the technological assets and know-how possessed by the Kao Group.

              Looking ahead, we will firmly link the results accumulated through 2025 to further growth and accelerate initiatives toward the final year of the Mid-term Plan "K27." Through the development of Global Sharp Top businesses and strategic portfolio management, we aim to achieve sustainable growth and enhance medium- to long-term corporate value.

              * Stable Earnings: Fabric Care, Home Care, Personal Health; Growth Driver: Skin Care, Cosmetics, Business Connected (Commercial-use hygiene products), Chemical; Business Transformation: Sanitary, Hair Care

         3. Target Management Metrics

            The Group uses Economic Value Added (EVA) and Return on Invested Capital (ROIC) as its principal management metrics. Our reason behind choosing these metrics is to use capital efficiently to generate profits in consideration of the interests of shareholders and other fund providers. We believe that continuously increasing EVA will lead to increased corporate value and is consistent with the long-term interests of not only shareholders but all our stakeholders. The goal of our business activities is to increase EVA while expanding the scale of our operations, and we use this metric in the evaluation of individual businesses, the evaluation of investments such as capital expenditures and acquisitions, as well as in annual performance management and compensation systems. We are also working to enhance EVA management by strengthening business portfolio management by using ROIC, a metric that raises awareness of capital cost in each business and enables management that take into account their respective characteristics and competitive environment. By focusing on capital efficiency alongside profits in each business, we aim to improve EVA through focused investment in growth businesses and sound portfolio improvement.

      3. Issues for Management

      Toward 2025, the global economy continued to face uncertainty due to geopolitical risks, changes in international conditions, and fluctuations in foreign exchange rates and prices. At the same time, both in Japan and overseas, a recovery in consumer activity and the emergence of new demand have been observed, resulting in a business environment in which opportunities and risks coexist.

      Under these circumstances, the Kao Group continues to be required to accurately capture changes in the business environment while achieving both profitability and growth, and to link these efforts to sustainable growth.

      In order to respond to these demands, the Kao Group has been promoting structural reforms and growth strategies based on the Mid-term Plan "K27." Through initiatives undertaken to date, significant results have emerged, including improvements in profitability and capital efficiency, as well as the expansion of growth driver businesses. Going forward, it will be important to firmly connect these results to sustainable growth. To this end, we will further accelerate the development of "Global Sharp Top" businesses and flexibly promote initiatives based on strategic portfolio management.

      In addition, the Kao Group has positioned the resolution of social issues at the core of its business activities and has provided high value-added products and services that are loved by consumers over the long term through environmentally conscious Yoki-Monozukuri. The transition to a circular business model that we have been advancing is steadily progressing, and going forward, further deepening these initiatives will be an important theme in achieving both environmental value and economic value.

      Furthermore, as global business expansion progresses, strengthening a stable earnings base and enhancing the ability to respond to change remain important challenges. Through investment in human capital and the advancement of organizational management, we will strengthen a management foundation equipped with swift decision-making and strong execution capabilities, and work to enhance the overall competitiveness of the Kao Group.

      Through these initiatives, the Kao Group aims to enhance long-term corporate value with a view toward the final year of the Mid-term Plan "K27" and sustainable growth beyond it.

   2. Approach to Sustainability and Related Initiatives

Forward-looking statements contained in this section are based on assumptions that management believes to be reasonable as of the filing date of the Annual Securities Report and may differ significantly from actual results due to various factors.

1. ESG Strategy: Kirei Lifestyle Plan

   For Kao to become a company with a global presence that is valuable to society, which is what Kao aims to achieve by 2030, we implement sustainability perspectives at the core of management. The Kirei Lifestyle Plan (KLP), which defines Kao's initiatives in the areas of environment, society, and governance (ESG), aims to enrich the lives of people all over the world. It consists of 19 Kao Actions.

   Based on the KLP, we will pursue sustainable growth through the creation of environmental and social value.

   1. Governance

      We have a flexible and robust ESG governance structure in order to swiftly respond to the major changes taking place globally, aiming to expand business and to address social issues. Our ESG governance provides a system for supervising and promoting initiatives, incorporates environmental (E) and social (S) perspectives into Kao's management and business activities, and supports the realization of the Mid-term Plan "K27" as well as the mid- to long-term corporate value enhancement beyond this plan. Under this system, the President and CEO as well as divisions and Group companies are responsible for executing business operations under the supervision of the Board of Directors, which is responsible for decision-making. Characteristics of this system include the ability to ensure swift and targeted implementation and to promote the creation of innovation by incorporating third-party perspectives from outside directors and experts into management decisions and new businesses.

      The Board of Directors ensures that it has the appropriate knowledge, experience, and competence to supervise ESG issues. In order to oversee overall management from multiple perspectives, we consider a balance of expertise and position ESG matters also as requiring specialized knowledge to address. Therefore, we appoint a number of Directors and Audit & Supervisory Board Members who are well-versed in ESG matters. The Board of Directors receives regular reports twice a year and reports on policies and strategies as well as targets, KPIs and progress of activities from the ESG Managing Committee, which deliberates and discusses ESG issues. In this way, the Board of Directors oversees the execution status. The ESG-related KPIs to be reflected in the compensation policy are discussed by the Compensation Advisory Committee for Directors and Executive Officers and approved by the Board of Directors. Starting from fiscal 2024, the ratio of short-term and long-term incentive compensation against base salary has been revised to 1:1:1 for the Representative Director, President and Chief Executive Officer. Long-term incentive compensation incorporates the "ESG Activities Evaluation indicators" consisting of the achievement of the KLP's priority targets (weighted at 25%) and the results of external evaluations by major ESG evaluation organizations (weighted at 15%). The achievement of KLP's priority targets is based on a multifaceted evaluation and consists of decarbonization (CO2 emissions reduction rate), zero waste (plastic recycling rate), percentage of female managers, and the number of serious compliance violations. For details, please refer to "IV. Information about Reporting Company, 4 Corporate Governance, (1) Overview of Corporate Governance, (4) Director Remuneration."

      The overall execution of ESG has a governance structure with the ESG Managing Committee chaired by the Representative Director, President and Chief Executive Officer as the highest authority. The ESG Managing Committee, which consists of management, discusses and decides on the direction of activities related to the KLP, and reports the status of activities to the Board of Directors. In addition, the ESG External Advisory Board, which is comprised of outside experts, provides reports and recommendations in response to the consultations of the ESG Managing Committee, and reflects the third-party perspectives of experts in management.

      Additionally, we have established the cross-functional ESG Promotion Meeting, which works to steadily execute the KLP, and the ESG Steering Committees, which strive to ensure reliable and timely execution for priority issues. Based on the decision made by the ESG Managing Committee, the ESG Promotion Meeting promotes ESG-related activities throughout the Kao Group and monitors the progress of each department. The ESG Promotion Meeting is chaired by the Senior Vice President and the Executive Officer of the ESG division, and the meeting attendees are made up of the people responsible for business divisions, regions, functional divisions, and corporate divisions. The ESG Steering Committees will promote initiatives based on the priority issues of decarbonization, plastic packaging, human rights and DE&I, and chemical stewardship, respectively. Executive Officers are responsible as the owners of each issue and are granted a certain level of decision-making rights. The ESG Steering Committees work in conjunction with the ESG Managing Committee to ensure that initiatives are implemented promptly and reliably in each area.

      ESG-related risk management is carried out by the Internal Control Committee (which meets twice a year and is chaired by the Representative Director, President and CEO), and opportunity management is conducted by the ESG Managing Committee (which meets six times a year and is chaired by the Representative Director, President and CEO).

      
      
      

      Roles, structure, frequency of meetings and agenda of each organization

      ESG

      Managing Committee

      Deliberate, discuss or report the following items that concern Kao as a whole:

      Performance (2025)

      Organization

      Roles

      Structure

      (As of January 2026)

      Frequency

      of meetings

      Main deliberated items

      
      
      

      • Basic approach to and policy of ESG

      • ESG policy sharing, strategy, activities, external communication, etc.

      • Decisions on investments for promoting ESG activities

      • Trends, issues and opportunities for the sustainability of the world at large and for ESG

      • Active stakeholder engagement by ESG Managing Committee members

      • Deliberation with the Board of Directors and regular reporting on the status of discussions

        Chair: Representative Director, President and Chief Executive Officer

        Members: Representative Director, Senior Managing Executive Officer; Managing Executive Officers; Executive Officers

        Observer: Full-time Audit & Supervisory Board Members

        Six times/ year

      • Deliberated on and approved disclosure regarding quantitative assessments of financial impacts based on the TCFD

      • Deliberated on and approved the disclosure policy of the Kao Sustainability Report 2025, the details of disclosure including the progress made on KLP KPIs

      • Added and revised KPIs in the KLP, and deliberated on and approved new KPIs

      • Deliberated and decided on the annual ESG investment budget and investment projects

      • Deliberated on and discussed policies and operations for goal-setting management related to promoting ESG

      • Deliberated on proposals submitted by the ESG Steering Committees

      • Examined the proposals from the ESG External Advisory Board

      			Members: External influential experts CEO, Ethical Association Specialization: Ethical consumption, etc. Director, Verde Research and Consulting Ltd. Specialization: Waste management, Recycling systems, etc. Governance, Law, etc.	Twice/ year
      ESG External Advisory Board
      			Chair: Executive Officer, Senior Vice President, ESG Members: Responsible persons, etc. at business divisions, functional divisions, corporate divisions and regions	Six times/ year
      ESG Promotion Meeting
      			Owner: Executive Officer, Vice President, R&D Core Technology Research Center Members: Staff of R&D, Procurement, Manufacturing and Engineering, Chemical Business, ESG	Six times/ year
      ESG Steering Committees	Decarbonization

      • Give advice and recommendations for issues raised by the ESG Managing Committee from outside viewpoints and based on a high level of expertise

      • Provide information to the ESG Managing Committee to enable the development and implementation of world-class plans

      • Provide opportunities for collaboration and cooperation with external parties

      • Evaluate Kao's ESG activities

      • Rika Sueyoshi

      • Mike Jefferson

      • Noémie Bauer CSO, Pernod Ricard Specialization:

      • Proposed expectations for and risks to Kao based on the social climate

      • Evaluated the progress made in ESG and raised issues

      • Provided advice on revising Kao's materiality

      • Provided advice on promoting the procurement of sustainable raw materials

      • Provided advice for circular economy and advocacy activities

      • Provided advice on DE&I and human rights approaches and initiatives

      • Implement the ESG strategy to integrate it with business based on the direction decided by the ESG Managing Committee and its suggestions

      • Supervise and examine to implement key ESG actions

      • Compile the issues faced by each division and region in promoting ESG activities and propose solutions to the issues to the ESG Managing Committee

      • Revised the mid- to long-term targets in the KLP and the progress and future plan for action themes in the KLP

      • The progress of the ESG Steering Committees

      • The draft of an ESG investment strategy

      • Proposed the direction of information disclosure in the Sustainability Report and other materials

      • Promotion of ESG activities in each division and region and identified issues

      • Draw up a GHG reduction plan

      • Promote rapid decarbonization activities through centralized discussions on decarbonization response measures and business opportunities for mitigation and adaptation to achieve carbon zero in 2040

      • Appropriately manage climate change risks based on the results of scenario analysis

      • Deliberated on and approved a GHG reduction strategy

      • Discussed the progress made to achieve decarbonization-related KPIs and approved an action policy to address issues

      • Deliberated on and approved a policy for the fixation of carbon dioxide

      			Owner: Managing Executive Officer, Senior Vice President, R&D Members: Staff of R&D, Procurement, Global Consumer Care Business, ESG	Eleven times/ year
      	Plastic packaging
      Human rights and DE&I			Owner: Managing Executive Officer, Senior Vice President, Human Capital Strategy Members: Staff of Human Capital Strategy, Procurement, Manufacturing and Engineering, and Global Consumer Care Business	Once/ month
      		*Global Framework on Chemicals - For a Planet Free of Harm from Chemicals and Waste	Owner: Senior Executive Officer, Senior Vice President, Product Quality Management Members: Staff of ESG, R&D, and Product Quality Management	Once/ month
      	Chemical stewardship

      • Discuss activities related to plastic packaging, a key issue for Kirei Lifestyle Plan action "Zero Waste" to realize a circular society, in a centralized manner and promote activities strongly and promptly

      • Promote activities in conjunction with the Decarbonization Steering Committee, Water Conservation and Biodiversity

      • Formulated a draft policy and discussed and approved the actions regarding Innovation in Recycling initiatives (collection and recycling)

      • Formulated a draft policy and discussed and approved the actions regarding Innovation in Reduction initiatives (reducing the amount of materials used and using recycled materials)

      • Responded to the Plastic Resource Circulation Act of Japan

      • Centrally promote and manage the Kao Group's human rights-related activities, including human rights due diligence, in accordance with the Kao Human Rights Policy

      • Centrally promote and manage the Kao Group's DE&I activities based on its DE&I Policy

      • Promoted activities based on the human rights and DE&I Policy

      • Shared the risks identified in the human rights risk assessment and promoted activities at relevant divisions and subsidiaries

      • Promoted understanding of human rights and DE&I and developed awareness-raising initiatives for employees in anticipation of implementing activities along these lines

      • Built an internal global collaborative structure for implementing DE&I, and launched activities

      • Promote voluntary management of chemical substances throughout the product lifecycle by the GFC* Promotion Committee

      • Develop policies and reduction/phase-out plans for the use of raw materials used in products taking into account the progress of regulatory trends, science, and other factors by the Chemical Stewardship Council

      • Disclose information on our approach to the use of chemicals and the results of safety assessments, and communicate with stakeholders

      • Understood the European Green Deal and other regulatory trends in product raw materials and identified raw materials and products subject to such policy and regulations

      • Disclosed ingredients of high social concern among which are not used in Kao's consumer products

      • Discussed approaches for reducing the impact of chemical substances on the environment and human health throughout the product lifecycle and for disseminating information about these initiatives in an easy-to-understand way

      • Participated and contributed to the World Business Council for Sustainable Development (WBCSD) and the European Chemical Industry Council (Cefic)

   2. Strategy

      Under the Kao Group Mid-term Plan 2027 "K27," the Kao Group has positioned becoming a company indispensable to a sustainable society as a core element of its basic policy, and aims to achieve profitable global growth and enhance corporate value over the mid- to long-term. Kao's approach to sustainability is an initiative to promote the creation of environmental and social value in tandem with business growth and, based on economic rationality, translate these efforts into the establishment of a sustainable competitive advantage and the enhancement of corporate value. The ESG strategy that underpins this approach is the Kirei Lifestyle Plan (KLP). By evolving Yoki-Monozukuri from an ESG perspective and through mitigating risks and creating opportunities that may impact the mid- to long-term enhancement of corporate value, we seek to achieve both profitable growth and contributions toward a sustainable society.

      Additionally, we have established the concept of "Maximum with Minimum" to represent our approach for promoting business growth while simultaneously maximizing value and minimizing negative environmental and social impact. We are pursuing efforts to implement this approach in all business activities.

      Five perspectives for the KLP to enhance K27

      The KLP reinforces K27's four strategic frameworks in a multifaceted manner to achieve profitable growth and address social issues based on the following five perspectives:

      1. Strengthening our business by anticipating future consumer needs across the globe

         In light of the needs of diverse consumers around the world as well as the growing severity of social issues, we act swiftly to seize market opportunities with high social usefulness and enhance our competitiveness by displaying unique qualities in technologies and products that can be realized by Kao. As a result, we will create new added value and contribute to building Global Sharp Top businesses.

      2. Strengthening the human capital necessary for global expansion

         We develop people who can create value in response to diverse consumer issues, promote an approach in organizational management that allows us to fully demonstrate our unique technologies and product value globally, and fortify our Global Sharp Top human capital strategy.

      3. Optimizing investments to accurately reflect future risks and opportunities from a global perspective

         We increase business resilience by reducing ESG-related risks and creating opportunities, and we allocate capital with a focus on fields that have high social usefulness and in which Kao can demonstrate its unique value, thereby promoting capital efficiency and profitability improvement.

      4. Enhancing mutual empathy with our partners and strengthening co-creation

         To address social issues that Kao cannot easily tackle on its own, we collaborate with partners in industry, local communities, retail, and other fields, utilizing Kao's unique technologies and insights to promote business development through co-creation with our partners.

      5. Enhancing risk reduction and opportunity creation in the entire value chain

         We reduce ESG-related risks at each step in the value chain, including procurement, production, distribution, retail, use, and disposal and recycling, while also creating opportunities to boost social usefulness, thereby increasing the sustainability of our business and enhancing stability in supply.

         
         
         

         Enhancement of K27 through the KLP

         Focus Categories, Risks and Opportunities

         Kao's business model and value chain have the following characteristics.

         Areas related to the characteristics of Kao's business model and its sustainability context

         1. Manufacturing and sales of consumer products for consumers around the world

         2. Manufacturing and sales of chemical products for customers in a wide range of industries around the world

         3. Using chemicals as a key material shared between the Global Consumer Care Business and Chemical Business

         4. A global value chain spanning from raw material production to product sales, with numerous raw materials suppliers in the upstream and numerous distributors, retailers, business partners, and customers in the downstream

            When formulating the KLP, taking into account the characteristics of the business model described above as well as social issues, we defined four focus categories-Daily living, Society, Environment, and Business foundation-and identified risks and opportunities accordingly.

            Daily living: A unique area of Kao's efforts to meet the needs of consumers and enrich their lives, and it constitutes the core of our ESG strategy.

            Society: An area in which Kao engages with diverse industries and society through its globally operated value chain and the Chemical Business.

            Environment: An area of significant impact, as certain materials depend on natural capital, and products are distributed, used, and disposed of by consumers worldwide.

            Business foundation: In order to steadily promote the initiatives in the above three areas, the enhancement of the business foundation including human capital development, respect for and protection of human rights, promotion of DE&I activities, and chemical substance management, etc. is essential.

            In these four categories, we identify risks and opportunities and incorporate them into specific strategies within the KLP. Additionally, by enhancing the resilience of the entire value chain, managing procurement risks, utilizing alternative raw materials, strategically procuring renewable materials and pursuing other efforts, we aim to reduce environmental impact while also achieving stable supply. We will also enhance value propositions that are predicated on social issues and expand the potential of service and business models that go beyond conventional approaches of simply providing products.

            
            
            
            
            
            
            Our vision for sustainability

            We aim to realize a sustainable society through business activities based on the concept that Kao's ESG activities are designed to help people around the world live more sustainably and benefit the wider society and the planet. Our value of walking the right path is presented as the foundation of these ESG activities and embodies one of the core tenets of our founder Tomiro Nagase: "Good fortune is given only to those who work diligently and behave with integrity."

            ESG strategy: the Kirei Lifestyle Plan (KLP)

            The KLP was established on the basis of the vision described above, and it aims to create economic value while solving social and environmental issues through value creation that puts consumers first.

            The KLP includes three main pillars, namely "Making my everyday more beautiful," "Making thoughtful choices for society" and "Making the world healthier and cleaner." Walking the right path is the foundation that supports these pillars. For each pillar, we have defined the Kao Commitments, which we aim to achieve by 2030, as well as Kao Actions, our priority action themes. By setting medium- to long-term targets and metrics and managing progress against them for each of the 19 actions, we promote effective ESG activities.

            By implementing the KLP, it is possible to create a financial impact, as well as a positive impact on the environment and society, while also creating a foundation for sustainable growth to support business operations. The diagram below illustrates the structure of the KLP and its financial, environmental and social impacts, while also showing how Kao implements the KLP in its business activities to promote initiatives for business growth and minimize risks.

            By providing products and services that contribute to consumer value and reinforcing value propositions that respond to social issues, we earn greater trust and loyalty from consumers. This in turn boosts our competitiveness as a brand that people continually choose and serves as a foundation to support profitable business operations. Meanwhile, our activities to curb environmental impact and reduce negative social impact, respond to regulations, mitigate procurement risk, further enhance stability in the supply chain, boost business resilience and strengthen the robustness of our management foundation.

            In this way, the components of the KLP contribute toward both opportunity creation and risk reduction through a multifaceted approach that involves creating consumer value, minimizing negative environmental impact, and responding to social issues. By pursuing these efforts in an integrated manner, we aim to achieve sustainable business growth while also enriching the lives of consumers.

            
            
            

            Structure of the KLP and its financial, environmental and social impacts

            Financial impact of the KLP

            Promotion of the KLP supports enhanced profitability through the structural reforms described in K27, greater competitiveness in our core brands and the global expansion of high-value-added products from the perspective of (1) Revenue growth and greater opportunities for revenue, (2) Cost reduction and improved resource efficiency, and (3) Risk management and reinforced resilience.

            1. Revenue growth and greater opportunities for revenue

               • Development of markets in areas with high social usefulness and promotion of higher added value through products that have reduced environmental impact and solutions to address social issues

               • Establishment of brand positioning in which the brand continues to be chosen at an appropriate price, through strengthened consumer trust and enhanced brand value

               • Creation of new business opportunities aligned with trends toward the sustainability of the world, including decarbonization and resource circulation

               • Establishment of a competitive advantage by accelerating the global rollout of high-value-added-products centered on proprietary technologies, quality and experiential value

            2. Cost reduction and improved resource efficiency

               • Reduction of future regulatory compliance costs through proactive responses to environmental regulations and planned capital expenditure

               • Strengthening resilience to raw material price volatility and supply constraints through reductions in raw material and energy consumption and improvements in resource efficiency

               • Diversification of funding sources and reduction of the cost of capital through improved ESG ratings from external evaluation agencies and the use of sustainability-linked finance

            3. Risk management and reinforced resilience

               • Minimization of operational risks and regulatory compliance costs through the identification and management of environmental and social risks across the supply chain

               • Stabilization of raw material supply and reduction of price volatility risks by developing and procuring alternative raw materials for palm oils and expanding the procurement of raw materials with lower deforestation risk

               • Reduction of reputation risk and contribution to rulemaking through the disclosure of information on chemical safety and participation in international sustainability initiatives

            Specific Financial Benefits (Cases)

            Promoting initiatives based on the KLP contributes to enhancing corporate value by expanding business opportunities and reducing risks over the mid- to long-term, in addition to creating environmental and social impacts.

            Case	Initiatives	Effects
            Adding high value to laundry detergents through sustainable design	Integrated implementation of measures including the adoption of bio-based surfactants; expanded use of recycled plastic containers and refill packs; lightweighting and compacting of packaging; reduction in the number of rinse cycles (conserving resources during use); and the use of renewable energy in the manufacturing process.	Improved profitability by enabling sales at appropriate prices through higher value-added offerings Higher loyalty supports stable earnings
            Strengthening cost competitiveness of dishwashing detergents through lightweighting of containers/packaging and the use of recycled materials	Lightweighting of refill packs; use of recycled plastic and plant-based plastics; and packaging design that enhances ease of disposal (designed to encourage behavioral change)	Reinforced cost structure through a reduction in the amount of resources used Contributions to the expansion of sales opportunities by leveraging environmental value as a differentiating factor
            Business growth with climate change adaptation	In response to increasingly extreme heat and hot and humid conditions, development of skin protection businesses-including heat care, UV care products, and sweat care-in both BtoB and BtoC markets	Creation of sales opportunities Diversified revenue sources and increased brand value
            BtoB implementation model with a focus on solving social issues	Rollout and promotion of a mechanism to encourage workplaces to keep products on hand (a recurring model in which companies purchase and replenish products)	Establishment of stable sales through the creation of continuous replenishment demand Strengthening of the customer base and premium opportunities
            Sustainable finance	Sustainability-Linked Bond (25 billion yen), Sustainability-Linked Loan (20 billion yen), Positive Impact Finance (25 billion yen) and DBJ Employees' Health Management Rated Loan Program (10 billion yen)	Reduced funding costs by obtaining financing at low interest rates

            These initiatives are being promoted with different levels of priority on the basis of the Kao Commitments in the KLP as well as the 19 Kao Actions serving as key themes. As a result, we are achieving a mid- to long-term improvement in corporate value that is integrated with the financial impact (profitability, cost and resilience) mentioned above by reducing environmental and social risks, securing stability in supply and building greater trust among consumers and customers.

   3. Risk management

      We are reinforcing our risk and opportunity management to ensure risk mitigation and business opportunity creation under flexible and resilient ESG governance.

      Risk management involves the Risk and Crisis Management Committee regularly monitoring the significance of the risks. Among these, risks that would have a major impact on management and require an enhanced response are designated as Corporate Risks, and for those, risk themes and risk owners are decided by the Management Board. The progress is managed by the Risk and Crisis Management Committee, and each organization addresses risks that can be managed by individual divisions and group companies. For details, please refer to "II. Business Overview, 3. Business Risks and Other Risks."

      In terms of opportunity management, we have established a structure that comprehensively manages ESG-related key themes for the entire Kao Group to build a system that promotes ESG investments through priority setting, which is connected to creating and business opportunities for strategic development.

   4. Metrics and targets

We are steadily implementing the KLP by setting ambitious metrics and targets, clarifying the direction of the KLP, and accurately managing the progress. We have set metrics and targets for each of the 19 actions of the KLP. Under the aforementioned ESG governance structure, progress made to meet each of the metrics is monitored and reflected in initiatives based on the results.

Mid- to long-term targets for the 19 Kao Actions of the KLP

• Changes in indicators and target values

Please refer to Kao Sustainability Report 2026 to be issued in June 2026 for more details. https://www.kao.com/global/en/sustainability/pdf/sustainability-report/