Showa Sangyo Co., Ltd.

Major raw materials such as wheat, soybeans, rapeseed, and corn are primarily procured from overseas, and sharp fluctuations in international grain market conditions, foreign exchange rates, and ocean freight rates directly push up manufacturing costs, materially affecting operating results. Since wheat depends on the government's sales allocation system, there is also a risk of system changes arising from developments in international trade negotiations. As countermeasures, the Group utilizes derivatives such as forward exchange contracts, diversifies procurement regions, and maintains approximately 2.3 months' worth of stockpiled inventory.

There is a risk that domestic demand for the Group's products will structurally decline over the medium to long term due to Japan's declining population and the progression of the declining birthrate and aging society. In response, the Group is promoting cross-category proposal-based sales, expanded sales of value-added products, and the creation of new businesses in non-food fields such as oleochemicals, while also accelerating overseas expansion centered on the ASEAN region where demand remains robust.

The Group is considering M&A and joint ventures both in Japan and overseas to realize the long-term vision "SHOWA VISION 2035" and the Medium-Term Management Plan 26-29; however, changes in the business environment may prevent the initially expected synergies from being achieved. In addition, goodwill and customer-related assets recorded in connection with corporate acquisitions may be subject to impairment losses due to a decline in the profitability of the acquired businesses, which could affect operating results and financial condition. The Group aims to reduce these risks through a verification and review process based on its own guidelines and the use of external experts.

In the event of a large-scale natural disaster such as a Nankai Trough megaquake or an earthquake directly beneath the Tokyo metropolitan area, a fire or explosion accident, or a pandemic, operations at plants across the country could be suspended, supply chains disrupted, and product supply stalled, potentially causing material impacts on operating results and financial condition. As countermeasures, the Group has established and trains on BCPs, operates data centers across multiple sites, holds regular meetings of its Disaster Countermeasures Committee, and has built a system for establishing a task force in the event of an infectious disease outbreak.

In the event of an unforeseen food safety incident, this could develop into health damage-related compensation claims and product recall costs, decreased sales due to suspension of operations or shipments, and mid- to long-term loss of customers due to reputational damage. Additionally, if livestock infectious diseases such as BSE, foot-and-mouth disease, or avian influenza occur at a scale exceeding expectations, this raises concerns of decreased sales of compound feed and ripple effects across the entire feed and livestock industry. The Group operates its own Food Safety and Quality Management System (FSQMS), which incorporates international standards such as FSSC 22000, and has established a system for establishing an emergency product safety committee.

Abnormal weather and rising average temperatures associated with climate change may reduce harvest yields and degrade the quality of major raw grain crops, potentially causing raw material procurement prices to surge and supply to become unstable. Additionally, insufficient response to transition risks such as the introduction of carbon taxes or tightened emissions regulations could increase operating costs and erode stakeholder trust, affecting financial condition and brand value. The Group endorses the TCFD recommendations, continues to conduct risk analysis based on 1.5°C, 2°C, and 4°C scenarios through its TCFD Committee, and promotes reduction activities by setting environmental targets across four areas including GHG emissions.

In the operation of overseas production, processing, and sales sites, as well as export business, business continuity could be disrupted by changes in political conditions, changes in laws and regulations, changes in tariffs and trade policy, foreign exchange fluctuations, logistics disruptions, conflicts and terrorism, or inadequate governance at local subsidiaries. As countermeasures, the Group continuously monitors overseas conditions and related laws, collaborates with external experts, strengthens local governance structures and internal controls, and utilizes insurance.

A decline in the number of drivers and warehouse workers, along with regulations capping overtime work (the "2024 logistics problem"), may cause transport capacity shortages, potentially disrupting product supply to customers in both raw material procurement and product supply. In addition, rising logistics costs due to requests for higher freight and warehouse usage fees could affect operating results and financial condition. The Group is implementing efficiency measures such as joint round transport with other companies in the same industry, introducing a vehicle reception management system, and renewing automated multi-story warehouses, and plans to submit a mid- to long-term plan as a designated shipper by October 2026.

Due to increasingly sophisticated and advanced cyberattacks, an attack such as ransomware could cause system outages that delay product supply, damages liability from information leaks, and customer attrition due to loss of trust, potentially affecting operating results and financial condition. The Group addresses this through the introduction of a security system based on zero-trust principles, formulation of an IT-BCP manual, e-learning on countermeasures against targeted email attacks, and enhanced training for IT promotion personnel.

A material violation of domestic or overseas legal regulations such as the Food Sanitation Act, the Antimonopoly Act, the Act against Unjustifiable Premiums and Misleading Representations, and the Act on the Protection of Personal Information could result in legal liability including damages, criminal penalties, and administrative sanctions, as well as a significant decline in social credibility and brand image, potentially affecting operating results and financial condition. Under its basic compliance policy, in addition to establishing regulations, conducting educational and awareness-raising activities such as training, and operating an internal reporting system, the Group has newly established a "Supplier Hotline" reporting channel for suppliers starting in FY2026.