TAKARA HOLDINGS INC.

The majority of Takara Shuzo's net sales depend on the domestic Japanese market. In addition to the accelerating diversification and change in consumer preferences, the aging and declining population in Japan and the drift away from alcohol consumption among younger generations may lead to a decrease in demand for alcoholic beverages. If the company fails to provide attractive products, there is a risk that future growth potential and profitability could decline. As a countermeasure, the company is working on the development and cultivation of high-value-added products with SDGs in mind.

In the domestic alcoholic beverage and seasoning markets, competition is intensifying amid slowing overall market growth, which may lead to declining sales and difficulty passing on rising raw material costs to product prices, resulting in lower profit margins. Overseas, the Takara Shuzo International Group competes with numerous rivals in the whisky, Japanese alcoholic beverage, and Japanese food wholesale businesses, making the maintenance of competitiveness a challenge. As countermeasures, the group is working on developing differentiated products using proprietary technology, strengthening brand power, expanding business locations including through M&A, and diversifying sales channels.

The majority of Takara Shuzo's alcoholic beverage products are concentrated at two manufacturing sites, the Fushimi Plant (Kyoto City) and the Matsudo Plant (Chiba Prefecture). If an operational disruption event such as a large-scale earthquake were to occur, production and supply capacity could significantly decline. Takara Bio Group's flagship reagents also depend on manufacturing at its Chinese subsidiary (Takara Bio (Dalian) Co., Ltd.), exposing the group to risks from changes in tariff policy or business suspension. Each company is advancing the development of business continuity plans (BCPs), mutual support systems, and multi-polar manufacturing structures.

Crude spirits (sourced from South America, North America, and Asia) and raw rice (domestically sourced) used by Takara Shuzo are affected by weather, economic conditions, and geopolitical factors in the sourcing regions, and price surges may lead to increased manufacturing costs. Geopolitical impacts on the global supply chain may cause price surges in raw materials and fuel procurement, posing a risk to business results and financial condition. As countermeasures, the company is working on diversifying sourcing locations and reducing costs through technological innovation.

Takara Shuzo is subject to manufacturing and sales license regulations under the Liquor Tax Act, and changes in liquor tax rates may affect sales prices and sales trends. The Takara Shuzo International Group is subject to various countries' import/export regulations, trade, tax, and environmental laws, posing risks of increased compliance costs and restrictions on activities. The Takara Bio Group is subject to regulations such as the Pharmaceuticals and Medical Devices Act and the Cartagena Act, and failure to obtain necessary approvals and licenses may affect business strategy.

If alcohol-related health disorders and social problems caused by inappropriate drinking become more serious, there is a possibility of stricter regulation of the manufacturing and sale of alcoholic beverages, which could affect business results and financial condition. Takara Shuzo and the Takara Shuzo International Group, based on their "Basic Policy on Responsible Drinking," engage in promoting appropriate alcohol consumption, implementing pure alcohol content labeling, and supporting and participating in WHO strategies.

There is no guarantee that R&D activities at the Takara Bio Group will proceed as planned, and delays or discontinuations may affect business strategy and business results. The biotechnology industry is subject to intense impacts from technological innovation and new entrants, and there is a possibility that the R&D currently being pursued may not yield the expected benefits or profits. To maintain competitive advantage, the group continues technology and product development in cooperation with external organizations such as universities.

The Group holds substantial tangible and intangible fixed assets, including goodwill, and if impairment losses are recorded due to sudden changes in the business environment, this could have a material impact on business results and financial condition. As countermeasures, certain investments require approval by the Board of Directors or other bodies, a hurdle rate based on the NPV method is set and progress is verified each period, and a system has been established to identify signs of impairment at an early stage.

Sales, expenses, and assets of overseas businesses are recorded in local currencies, and the amounts recorded in the financial statements are affected by exchange rates at the time of conversion into yen. In addition, exchange rate fluctuations may affect business results and financial condition in relation to foreign-currency-denominated merchandise purchases, raw material procurement, and product exports. As a countermeasure, the company utilizes hedging transactions such as forward exchange contracts to mitigate exchange rate fluctuation risk.

The Group manages numerous IT systems and a vast amount of information, including personal data. If information leakage, tampering, ransomware damage, or business disruption due to cyberattacks were to occur, this could cause operational disruption, response costs, and reputational risk. This risk is expanding with the progress of digital transformation and the expansion of remote work. As countermeasures, the company has established information management regulations and IT security policies, undergoes third-party assessments, and continuously conducts IT literacy training and suspicious email response drills for employees.