KYOKUYO CO.,LTD.

The Group has established a Quality Assurance Department and built a system to prevent food-related incidents. However, if product complaints occur that cannot be fully covered by the management system, this may result in product recall costs and a decline in the Group's creditworthiness. In addition, if shipment restrictions or import bans are imposed due to food safety issues in countries where raw materials are procured or where processing and manufacturing take place, this could disrupt raw material procurement and product supply, potentially having a significant impact on business performance and financial condition.

The Group purchases raw materials, including marine products, from both domestic and overseas sources, and holds inventory based on anticipated future market conditions. However, if events occur that affect market conditions beyond expectations, such as stricter fishing regulations or fluctuations in catch volumes, this could significantly impact business performance and financial condition. Since marine products depend on natural environmental conditions, forecasting market conditions is difficult, making this a key risk in cost management.

The Group conducts overseas processing operations in China and Southeast Asia, as well as business operations in Europe and North America, and maintains appropriate inventory levels in response to procurement risks. However, disruptions to logistics overseas, unexpected changes in laws, tariffs, or other regulations, and social unrest caused by conflict, terrorism, or riots may affect business performance, inventory assets, and human resource availability.

The Group imports and exports raw materials and products, primarily marine products. A weaker yen leads to higher foreign-currency-denominated import costs, while a stronger yen reduces foreign-currency-denominated export revenue. Although the Group hedges through yen-denominated settlements and forward exchange contracts, complete avoidance of such risk is not possible. In addition, rising funding costs associated with policy interest rate hikes could also affect the Group's financial condition.

The Group holds tangible fixed assets, goodwill, and other assets, and applies impairment accounting to them. However, if future changes in the business environment reduce expected future cash flows, additional impairment losses may be required, potentially affecting business performance and financial condition. As the Group's overseas business expands, intangible assets such as goodwill have also increased, making the management of impairment risk increasingly important.

The Group conducts overseas business primarily in Asia, Europe, and North America, as well as product development and research activities, making the securing of overseas personnel and personnel with specialized knowledge key to business operations. If the Group experiences a loss or shortage of personnel, or fails to adequately develop or recruit talent, this could affect its competitiveness and business results.

The Group conducts operations that use heavy oil as fuel, such as the operation of overseas purse seine fishing vessels, and a surge in crude oil prices directly leads to higher costs. Although the Group strives for efficient business operations, there is no means to completely avoid sharp fluctuations in crude oil prices, which could affect business performance and financial condition.

Against the backdrop of tightening fishing regulations, the Group operates an aquaculture business aimed at securing raw materials. However, if fish diseases that are difficult to prevent, or natural disasters such as typhoons and tsunamis, cause mass fish deaths or damage to aquaculture facilities, this could affect business performance and financial condition. While the Group strives for thorough facility management and improved yield rates, it is difficult to completely eliminate natural risks.

The Group has taken measures such as formulating a business continuity plan (BCP) and establishing an employee safety confirmation system in preparation for natural disasters, including large-scale earthquakes. However, if damage occurs, it could affect business performance and financial condition. Since the Group has production and processing facilities both domestically and overseas, maintaining business continuity in the event of a widespread disaster is an important challenge.

The Group has implemented appropriate measures against system failures and information leaks caused by computer virus infections and similar threats. However, unforeseen virus intrusions or unauthorized access could disrupt business operations. If an information leak occurs, in addition to affecting business performance and financial condition, it could also lead to a decline in the Group's creditworthiness.