AXYZ Co.,Ltd.

The price of feed raw materials, which constitutes the Group's principal manufacturing cost, fluctuates significantly due to grain market conditions, foreign exchange rates, ocean freight rates, geopolitical risks, and other factors. Although a compensation mechanism exists through the feed price stabilization fund system, a prolonged surge in prices would inevitably affect cost of sales. As countermeasures, the Group is working to expand its handling of processed products, strengthen sales of differentiated products, and reduce manufacturing costs through improved production efficiency.

Chicken meat (particularly thigh meat) is subject to significant market fluctuations, with unique seasonal factors such as demand for Christmas products and winter price increases driven by hot-pot dish demand. There is a time-lagged correlation between imported feed raw material market conditions and chicken meat market conditions, and trends in these could affect business performance. The Group strives to mitigate the impact of market fluctuations by strengthening sales of processed and differentiated products.

Foreign exchange fluctuation risk exists in the settlement of import transactions for feed raw materials. While the Group works to mitigate this risk through forward exchange contracts and derivative transactions, unexpected large exchange rate fluctuations could affect business performance. Given the raw material procurement structure's high dependence on imports, direct impacts on manufacturing costs are a concern in periods of yen depreciation.

Sales to two companies, Foodlink Corporation and Nichirei Fresh Inc., account for approximately 40% of total net sales, and changes in the management strategies of these two companies could directly affect the Group's business performance. While the Group is working to reduce this dependence by developing new business partners and expanding sales volume, high dependence on specific customers currently continues.

If avian influenza or other livestock infectious diseases occur at the Group's business sites or in surrounding areas, significant disruption to the operation and continuity of fattening facilities and factories is expected. Although the Group has established thorough disease prevention systems, it is difficult to completely prevent outbreaks, and this could significantly affect the company's credibility and business performance.

The Company procures breeder chickens improved by overseas breeding companies through sales companies affiliated with major general trading companies. If securing breeder chickens becomes difficult due to an outbreak of avian influenza or other epidemic diseases in the countries where the breeding companies are located, this could significantly affect chicken meat production. Because procurement sources are limited to overseas locations, there is limited scope to respond to geopolitical and epidemic disease risks.

If natural disasters, severe weather, fire, terrorism, strikes, war, or similar events occur in areas where the Group's business sites or business partners are located, or if disease or infectious illness spreads, disruption to business continuity is expected, including procurement of raw materials and products, factory operations, order processing, and product delivery. Because the Group has business sites spread across a wide area, simultaneous impacts on multiple sites are also anticipated.

In price competition with imported frozen chicken meat, if consumers prioritize price over quality depending on economic conditions, this could affect sales trends of the Company's chilled chicken meat. There are also many domestic chicken meat producers, and if competitive advantage in quality and price is not secured, this could affect business performance. The Company addresses this through differentiation via specially raised chicken not treated with antibiotics or antibacterial agents, and through strengthened cooperation with wholesalers and retailers.

As a food industry company, ensuring safety in the manufacturing process is a social responsibility, and should an unforeseen event such as food poisoning occur, this could significantly affect the company's credibility and business performance. In addition to the inspection system by poultry processing sanitation managers and live bird and internal organ inspections conducted by prefectural and government-designated city inspection authorities, the Company conducts voluntary in-house inspections; however, it is difficult to reduce the risk to zero.

The Group is subject to regulation under a wide range of laws, including the Food Sanitation Act, the Act on Regulation of the Poultry Slaughtering Business and Poultry Inspection, the Pharmaceutical Affairs Act, the Poisonous and Deleterious Substances Control Act, the JAS Act, and the Customs Tariff Act. Amendments to these laws or the revocation or suspension of permits and licenses could cause significant disruption to business continuity. The Group implements appropriate hygiene management and quality labeling management under permits and licenses granted by the governors of each prefecture and other authorities.