NICHIWA SANGYO CO., LTD.

The purchase price of corn and other raw materials that make up the majority of compound feed ingredients is based on the Chicago grain market in the United States, and fluctuates depending on planting conditions and weather in major producing regions. Unpredictable spikes in grain prices could directly impact cost of sales. There is no specific description of countermeasures, and the means to completely avoid market fluctuation risk are limited.

Since the majority of raw materials purchased by the Group are imported, there is a risk that a weaker yen will increase procurement costs and raise cost of sales. The Group seeks to mitigate this risk through forward foreign exchange contracts, but complete avoidance is difficult, and losses may occur in the event of unexpected sharp yen depreciation. The Group does not enter into foreign exchange forward contracts for speculative purposes.

Livestock product prices fluctuate according to supply and demand conditions, and may rise or fall in ways that diverge from production costs. During periods of market downturn, the profitability of livestock producers may deteriorate, creating a risk that the Group's receivables collection becomes difficult. In addition, since subsidiaries produce livestock products in-house, a decline in selling prices could directly impact net sales.

Under the feed price stabilization fund system, which prepares for fluctuations in compound feed prices, livestock producers and feed manufacturers contribute fund levies. When raw material prices surge, compensation payments occur, and depending on trends in feed fund levies, the Group's operating results and financial position could be affected. This system inherently carries a risk that changes in its operation or in the level of contributions could directly impact the Group's financial burden.

If an infectious disease occurs among livestock and aquaculture producers, it could affect the manufacturing and sale of compound feed, adversely affecting the Group's operating results and financial position. While subsidiaries' livestock breeding facilities strive for hygiene measures such as disinfection and early detection of abnormal livestock, in the event of a livestock infectious disease outbreak, mass disposal of products and breeding prohibition measures may be required, creating a risk of expanded losses.

If climate change or natural disasters cause damage to manufacturing equipment or halt plant operations, this could lead to a decline in net sales and an increase in cost of sales. If subsidiaries also suffer equipment damage or damage to livestock products due to natural disasters, this could result in a decline in net sales as well as recovery costs. Indirect effects through surges in raw material prices are also anticipated.