Nippon Beet Sugar Manufacturing Co., Ltd.

The sugar business accounts for approximately 70% of net sales, and most other businesses are ancillary to or related to the sugar business. There is a risk that a decline in domestic sugar consumption, driven by consumers' preference for lower sweetness and the increasing use of alternative sweeteners, could directly impact business performance. The Group is working to strengthen its overall business foundation through the promotion of diversified management.

The beet sugar business is heavily dependent on national agricultural policies such as the "Act on Price Stabilization of Sugar and Starch," and is carried out with the mission of achieving food self-sufficiency targets and promoting cold-climate agriculture in Hokkaido. There is a high likelihood that developments in international economic agreements such as CPTPP will be reflected in agricultural policy, posing a risk of affecting the performance of the sugar business. The Company is working to build a stable management foundation while closely monitoring policy trends.

Since sugar beet, the raw material for beet sugar, is an agricultural product, its production volume, sugar content, and quality are heavily affected by weather conditions. Fluctuations in raw material quality and quantity due to unfavorable weather directly affect plant operating rates, posing a risk of deteriorating performance in the sugar business. The Company is working to procure high-quality raw materials and maximize the manufacturing capacity of its sugar refining plants.

Much of the fuel and other materials required for beet sugar production is procured from overseas, and geopolitical events in the exporting countries can cause international supply-demand tightness, price spikes, exchange rate fluctuations, and worsening logistics conditions that significantly affect procurement costs. This poses a risk of pressuring the profitability of the sugar business. The Company is promoting energy conservation, restraint in the use of sugar manufacturing materials, and risk management of procurement in order to reduce manufacturing costs.

Imported raw sugar, the raw material for refined sugar, and imported grains, the raw material for compound feed, are subject to significant fluctuations in procurement prices due to overseas commodity markets and exchange rates. While selling prices generally track changes in procurement prices, there is a risk that sudden market fluctuations may not be reflected in selling prices in a timely manner, adversely affecting business performance.

Beet sugar is sold as either refined sugar or raw sugar under the national sugar price stabilization system, receiving domestic sugar production subsidies, with raw sugar having multiple price tiers depending on the bid price. Product selling prices can fluctuate significantly due to factors such as overseas sugar market conditions, posing a risk of deteriorating performance in the sugar business in the event of a sharp market decline.

The Company has established a management system based on its "Quality Assurance Regulations," and its sugar refining plants have obtained the international food safety management system certification "FSSC22000," working continuously to improve their quality control systems. In the event that an issue affecting food safety occurs, costs related to product recalls and measures to prevent recurrence may arise, posing a risk of affecting business performance.

Since the Company supplies products nationwide primarily from its production bases in Hokkaido, there is a risk that large-scale natural disasters such as typhoons and earthquakes, accidents such as fires and power outages, and severe winter weather could disrupt production and logistics functions. In addition, at sugar refining plants that operate large-scale equipment, production suspensions due to the spread of infectious diseases, industrial accidents, or failures of critical equipment could affect business performance.

There is a risk that severe temperature increases associated with climate change could impair the growth of sugar beet, the Company's primary raw material, significantly reducing the production efficiency of sugar refining plants. In addition, stricter regulations by governments and other bodies aimed at achieving a decarbonized society are expected to increase costs such as carbon taxes, as well as raise costs related to the introduction of energy-saving equipment and fuel procurement. Details are described in the Company's approach to and initiatives regarding sustainability.

The Company uses computer systems for production, sales, management, and other operations, and while it has implemented information security measures, there is a possibility that large-scale system failures or leaks of confidential or personal information caused by cyberattacks or other incidents could make normal business operations difficult, thereby affecting business performance.