IWATSUKA CONFECTIONERY CO.,LTD.

In addition to rice shortages and rising rice prices, seasonings, packaging film, fuel costs, and logistics costs have also generally continued to trend upward, making it difficult to stably secure the necessary volumes at low cost under the policy of using 100% domestically produced raw rice. Since raw material costs account for a large weight in manufacturing costs, price surges directly lead to increased costs and also carry risks of excess inventory or stockouts. As countermeasures, the company is working to expand contract farming, absorb cost increases through improved production efficiency, and enhance the efficiency of its logistics system, including joint distribution.

There are concerns that the situation in Ukraine and the Middle East, the impact of Trump tariffs, and the progression of yen depreciation could lead to further increases in raw material prices and energy costs, and if appropriate responses cannot be made over the medium to long term, this may lead to sluggish growth in sales and profits. Domestic economic fluctuations, labor supply-demand and wage increase trends, and overseas economic policy developments are also positioned as important factors affecting business performance. The company aims to respond to environmental changes through the reconstruction of its production and sales systems via the expansion and consolidation of plant facilities and the strengthening of group synergies.

Price competition is intensifying due to the growth and expansion of drugstores and discount stores, and there is a risk that the company, which has a relatively costly structure due to its use of 100% domestically produced raw rice, may be at a disadvantage in price competition with competitors. It cannot be ruled out that the development of high value-added products and the selection of production items and revision of selling prices could conversely lead to sluggish sales growth or reduced profit margins. The company is working to strengthen its competitiveness in both quality and price through concentrated sales of core products and improved production efficiency via mechanization.

The company holds shares in WANT WANT CHINA HOLDINGS LIMITED. (the Want Want Group), and dividends from this holding contribute to the company's cash flow and serve as a major management resource contributing to financial stability; however, a decline in the share price or a reduction in dividends could have a negative impact on assets and profit and loss. In addition, if political instability or deteriorating diplomatic relations become apparent due to concerns over a Taiwan contingency, there is a risk that the safety of dispatched employees could be threatened or the close relationship with the company could be damaged. While strengthening ties through technical support for the expansion of Want Want's business, the company is also working to reduce excessive dependence on Want Want by improving the efficiency of its manufacturing plants and equipment.

With the head office, plants, and logistics bases concentrated in Nagaoka City, Niigata Prefecture, if a large-scale disaster such as an earthquake, storm or flood damage, snow damage, or fire occurs, production and shipment could be delayed due to partial or complete suspension of operations, and damage to information systems could also disrupt sales, procurement, and logistics. The high production efficiency resulting from this concentration of bases is also a flip-side risk, and a decline in sales or the occurrence of extraordinary expenses would directly affect business performance. The company is working to secure human life, production facilities, and the supply chain, and to achieve early recovery, through the review of its business continuity plan and the strengthening of training and preventive activities.

As a food manufacturer, if a quality defect occurs, it could lead to a decline in customer trust and negative reputational effects, potentially affecting business performance through the incurrence of response costs and a downturn in sales. Product incidents such as foreign object contamination, component defects, or labeling errors are risks directly linked to damage to brand value. The company strives to prevent such incidents through thorough hygiene management, including promoting ISO22000 and FSSC22000 certification, strict management of raw material labeling, and the use of additive-free auxiliary materials.

The threat of cyberattacks, including ransomware, is rising globally, and if unauthorized access to systems cannot be prevented, there are concerns about the suspension of production activities, monetary damage, information leaks, secondary infections to third parties, violations of legal regulations, and reputational damage. Complete protection is considered difficult, and the company also recognizes the risk of ripple effects across the entire supply chain. In addition to strengthening data backup, firewalls, and antivirus software, the company has formulated a business continuity plan and is taking measures to minimize damage from ransomware.

As the importance of human capital increases, if the company is unable to effectively secure diverse human resources and develop talent according to job function and rank, this may hinder the formulation of effective management strategies and the execution of business activities as planned. Tight labor supply-demand conditions and wage increase trends are also factors affecting recruitment and retention. The company is advancing personnel system reforms, enhancing internal training systems, and improving the workplace environment with a focus on engagement, while also setting medium- to long-term policies and targets through its Sustainability Committee to address these issues.

With the domestic market accounting for nearly all of the company's sales destinations, there are concerns that the declining birthrate, aging population, and population decline will shrink the overall scale of the rice cracker industry, potentially making it difficult to secure sales even if market share is gained, due to the shrinking market itself. The scenario of simultaneous intensification of competition and market contraction is a risk that could affect business performance over the medium to long term. The company plans to address this by expanding sales channels into overseas markets through strengthened cooperation with the Want Want Group, and by differentiating itself and enhancing brand value through the pursuit of taste and quality.

The company is implementing large-scale capital investments aimed at increasing production of mochi-based products and relocating and consolidating aging plants; however, if the expected investment returns are not achieved and the invested funds or depreciation burden cannot be absorbed, this may affect business performance. In addition, if business profitability deteriorates or the market value of fixed assets declines significantly, there is a risk that impairment losses could occur. The company addresses this through the management of investment effectiveness by comparing and verifying facility plans against actual results, and through sufficient consideration of future profitability at the investment planning stage.