NITTO FUJI FLOUR MILLING CO.,LTD.

Due to the declining population and aging society in Japan, the domestic market for the flour milling industry has been stagnant, making medium- to long-term growth difficult to expect. Furthermore, if tariffs on imported foods are eliminated or reduced under international trade agreements, causing a significant shift in demand from domestic to imported products, this could affect business performance and financial condition. In response, the company is focusing on developing new markets, actively expanding overseas, and ensuring stable production of safe and reliable products.

Imported wheat, the main raw material, is managed centrally by the government through state trading, and procurement methods may be significantly revised depending on wheat policy trends. In addition, changes in the global food supply-demand structure and climate change could cause sharp increases in wheat prices, and exchange rate fluctuations could raise procurement costs; if product price revisions are not carried out appropriately, this could have a material impact on business results. In response, the company is working to secure stable procurement of raw materials, reduce costs through bulk purchasing of materials and improved yield, and revise sales prices in line with cost fluctuations.

Natural disasters such as major earthquakes, typhoons, and heavy rain, as well as accidents such as fires and explosions, could damage manufacturing facilities, halt production or shipments, or paralyze logistics functions, potentially causing business activities to stop. In particular, if a disaster or accident exceeding expectations occurs in the Kanto region, a key base of operations, and recovery takes a long time, or if facility repairs incur substantial costs, this could affect business performance and financial condition. In response, the company has introduced an employee safety confirmation system, strengthened emergency contact systems, and conducts regular drills.

Some manufacturing equipment has been in use for a long period, and if aging leads to breakdowns or performance degradation, this could affect business performance through reduced production efficiency and increased repair costs. Additionally, if a discrepancy arises with business plans, impairment of fixed assets may become necessary, which could affect business results and financial condition. In response, the company plans and implements repairs and replacements systematically based on a long-term maintenance plan while monitoring the current condition of equipment.

There is a risk that the assets and liabilities of overseas consolidated subsidiaries (in Vietnam, Thailand, etc.) could reduce shareholders' equity through translation differences when the yen appreciates. Additionally, as the proportion of overseas consolidated subsidiaries' net income to consolidated net income increases, yen appreciation against the Vietnamese dong or Thai baht would have a negative impact on consolidated net income. Foreign currency-denominated receivables and payables in Japan are hedged through forward exchange contracts, and the impact is considered to be limited.

Business expansion in the Asian market is a pillar of the company's overseas strategy, but various risks exist, including differences in laws and regulations, political, economic, and social conditions, and cultural and business practices across countries. If these risks materialize and make continued operations difficult, impairment losses or losses from business withdrawal could occur, affecting business performance and financial condition. In response, the company is working to strengthen cooperation with overseas subsidiaries, review its overseas strategy, and improve management and risk control systems, including strengthening its audit framework.

Compliance is required with various legal regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Food Sanitation Act, and the Product Liability Act. If unexpected tightening of regulations or new regulations arise, or if recall costs, litigation, or damages occur due to foreign matter contamination or defective quality labeling, this could affect business results and financial condition. In response, the company has obtained ISO22000, FSSC22000, and ISO14001 certifications at domestic and overseas production plants, and is committed to thorough quality control and quality improvement.

The company operates numerous systems related to core operations such as manufacturing and sales, as well as management administration, and there are risks of IT asset damage due to failures and cyberattacks such as malware infections from external sources, as well as risks of delays or disruptions in business activities. If these risks materialize, they could seriously impede business continuity. In response, the company is promoting zero-trust measures, improving system robustness, strengthening IT governance across the group, and providing information security education to employees.

If a new, unknown virus spreads and infections expand, in the flour milling and food business, this could lead to decreased flour consumption due to economic downturn, soaring raw material prices, and loss of sales or difficulty collecting trade receivables due to the deteriorating financial condition of business partners. In the restaurant business, store closures or reduced operating hours could lead to decreased sales, affecting business performance and financial condition. Disclosure of specific countermeasures in the securities report is limited, and it is recognized that this risk could materialize at any time in future periods as well.