Hikari Food Service Co., Ltd.

Against a backdrop of declining working-age population due to the falling birthrate, labor shortages and rising wages have become a social issue. If the Company is unable to secure and develop the excellent personnel essential for business expansion, or if labor cost increases become prolonged, this could materially affect its financial position and operating results. The Company is focusing on personnel development and recruitment, but this remains an ongoing risk as a structural challenge for the restaurant industry.

Fixed assets are grouped primarily by individual store unit, and if store performance continues to deteriorate and a decline in profitability is recognized, impairment losses will need to be recorded. The risk of individual store performance deterioration due to intensifying competition and changes in the operating environment in the restaurant industry is ever-present, and this could have a significant impact on the financial position and operating results. Likelihood is assessed as medium and impact as high.

In the event of a large-scale outbreak of infectious disease such as COVID-19 or a new strain of influenza, there is a risk of decreased customer traffic due to requests to refrain from going out, disruption of the supply chain, and shortened business hours or temporary closures. The restaurant industry is directly susceptible to the effects of the spread of infectious diseases, and the impact on financial position, operating results, and cash flows is assessed as high. Likelihood is assessed as low, but given past experience, the potential threat is significant.

As the Company operates stores in entertainment districts nationwide, a large-scale earthquake, typhoon, or other natural disaster occurring in a specific region could lead to sluggish sales and store repair costs arising from damage to social infrastructure and casualties. The impact is assessed as high, and a disaster occurring in a region where multiple stores are concentrated would have a significant impact on the financial position. Likelihood is assessed as low, and geographic diversification naturally mitigates this risk.

Mitsunori Otani, the founder and President & Representative Director, is well-versed in store operations, product development, and store development, and plays a critical role in business management. If he becomes unable to perform his duties for any reason, there is a risk of a significant impact on the financial position and operating results (impact: high). The Company is promoting organizational structuring, personnel development, and delegation of authority, but reducing this dependence remains a work in progress.

If raw material prices surge due to changes in market conditions or other factors, there is a risk that rising food ingredient costs will squeeze profitability. The Company strives to reduce raw material costs through strict quality checks and appropriate price negotiations, but there are limits to addressing external factors such as global supply-demand fluctuations and yen depreciation. Likelihood is assessed as medium and impact as medium.

In addition to directly-operated stores, the Company expands its store network through franchise agreements, and if a situation arises at a franchised store that adversely affects the Company's brand, this could impact the financial position and operating results through damage to brand value. The Company provides operational guidance to franchisees, but it is difficult to fully control the actions of franchised stores. Likelihood is assessed as medium and impact as medium.

If an accident related to hygiene, such as food poisoning, occurs, this could have a significant impact on the financial position and operating results through loss of public trust or suspension of operations. The Company has obtained permits based on the Food Sanitation Act, assigned food sanitation managers at all stores, thoroughly implemented hygiene management manuals, and conducts hygiene checks through external contractors and area managers. Likelihood is assessed as medium and impact as medium.

With the rapid spread of social media, if reputational damage occurs and spreads due to online posts or resulting media coverage, this could lead to decreased customer traffic and lower sales through damage to brand image. The restaurant industry is susceptible to the effects of reputation via social media, and once information spreads, it can take time to contain. Likelihood is assessed as medium and impact as medium.

The Company primarily procures funds for store openings, such as store equipment and lease deposits, through borrowings from financial institutions, and the ratio of interest-bearing debt to total assets reached 31.3% as of November 30, 2025. As borrowings are mainly at variable interest rates, a rise in interest rates would increase interest payment burdens, posing a risk to the financial position and cash flows. Likelihood is assessed as low and impact as medium.