FIRST BAKING CO., LTD.

The Group has obtained JFS-B certification (at all four plants) and FSSC22000 certification (at all lines of all plants), and is thoroughly strengthening its food safety management system. However, if an event beyond the scope of these efforts occurs (such as a food safety incident or foreign object contamination), it could have a material impact on business performance. Food safety risk is positioned internally as the highest-priority item, and the Group continues to work on improving its management system on an ongoing basis.

Raw materials account for a high proportion of cost of sales, and there is a risk that price increases in key raw materials such as wheat flour, sugar, fats and oils, and eggs—driven by market trends or abnormal weather—could put pressure on business performance. Although the Group strives for stable procurement and price maintenance, the structure remains susceptible to global supply-demand fluctuations and the effects of climate change.

Electricity and gas account for a high proportion of manufacturing expenses, and price increases in electricity and gas unit costs driven by market trends could affect business performance. Since energy, which is indispensable for plant operations, directly affects manufacturing costs, fluctuations in energy costs have a significant impact on profitability.

Transportation costs account for a high proportion of selling expenses, and there is a risk that transportation costs will increase due to driver shortages, higher labor costs resulting from regulatory changes, rising crude oil prices, and major changes to delivery systems led by business partners. The driver shortage, exemplified by the so-called '2024 logistics problem,' is a structural issue and represents medium- to long-term upward pressure on costs.

Amid an expected decline in demand due to population decrease, price competition and competition for sales share with other companies in the same industry are intensifying against a backdrop of consumers' cost-saving and low-price orientation. Although the Group is working to develop sales channels such as commercial-use products and convenience stores and to strengthen product competitiveness, business performance could be affected as a result of competition.

If production equipment is damaged or logistics functions are paralyzed due to natural disasters such as earthquakes or typhoons, the Group's policy is to respond by supplying products from other production sites. However, since its plants are concentrated in the Kanto region, if a wide-area disaster exceeding the assumptions of its crisis management measures occurs, alternative supply may become difficult, potentially having a material impact on business performance.

With regard to land and other assets held by the Group, a decline in asset value may necessitate impairment treatment, which could affect business performance and financial condition. Fluctuations in the real estate market or deterioration in the business environment could trigger such impairment.

If there is an excessive shortage of personnel across all departments, it could particularly hinder plant operations and product delivery, thereby affecting business performance. Against the backdrop of a declining working population due to the falling birthrate and aging population, securing human resources at manufacturing and logistics sites has become a structural challenge for the industry as a whole.

The amendment or abolition of various legal regulations, such as the Food Sanitation Act, the Industrial Safety and Health Act, and the Road Traffic Act, could affect business operations. While each department monitors the current situation and maintains response manuals, there is a risk that costs and business constraints may arise in responding to regulatory changes.

If a production equipment accident such as a fire occurs at a plant, or if a business partner becomes insolvent, business performance could be affected due to loss of production capacity or the inability to collect accounts receivable, among other factors. Furthermore, external compensation claims and occupational safety and health issues are also cited as factors affecting business performance and financial condition, and the Group has established a crisis response system, including the emergency convening of management meetings.