Suntory Beverage & Food Limited

Deterioration in economic conditions, rapid changes in consumer preferences, and intensifying competition driven by digital technology evolution may lead to decreased product demand, adverse effects on brand image, and valuation losses on inventory. In Japan, long-term population decline and aging also pose a structural headwind, and there is also a risk of seasonal demand decline due to unusual weather. In response, the Company is strengthening R&D based on forecasts of consumer preferences, conducting proactive advertising and sales promotion activities, and formulating appropriate supply-demand plans.

Climate change and fluctuations in supply and demand in global markets may cause significant volatility in the prices of key raw materials and energy (electricity and natural gas), potentially increasing production costs. If price increases cannot be sufficiently passed through to selling prices, or if such pass-through leads to reduced demand, this could affect operating results and financial condition. The Company strives to ensure sustainable procurement through its initiatives on key sustainability themes.

A variety of factors, including natural disasters, infectious diseases, geopolitical conflict, war and terrorism, labor shortages, and transportation disruptions, may disrupt raw material procurement, manufacturing, and sales activities, impairing manufacturing and sales capabilities. There is also a risk that additional management resources may be required to restore the supply chain. The Company is promoting optimization of supply chain management through data integration across production, logistics, and sales.

Cyberattacks, hacking, computer virus infections, system failures, and similar incidents may result in leakage of personal information and confidential information, suspension of information systems, and infringement of copyrights and other rights. In addition, as global data utilization expands, failure to comply with personal information protection laws and regulations in each country could lead to substantial damages, fines, or reputational damage. Under the "Suntory Group Information Security Basic Policy" and the "Suntory Group AI Basic Policy," the Company has established security measures, backup systems, and disaster recovery arrangements.

In business alliances and corporate acquisitions both in Japan and overseas, the absence of appropriate opportunities, failure to agree on terms, difficulty in obtaining necessary regulatory approvals, or encountering unforeseen issues may prevent the Company from realizing intended benefits or cost reduction effects. In addition, if impairment losses arise on goodwill and trademark rights recorded in connection with acquisitions, this could materially affect operating results and financial condition. The Company addresses this through annual impairment testing and the establishment of common rules for investment evaluation and monitoring.

Some raw materials are procured overseas mainly in US dollars, so exchange rate fluctuations may affect costs and the yen-translated results of overseas subsidiaries. In addition, the Company raises funds through interest-bearing debt, and turmoil in financial and capital markets or a credit rating downgrade causing significant interest rate fluctuations could increase the financial burden. The Company works to mitigate these risks through derivative transactions (foreign exchange hedging), fixed-rate financing, and diversification of funding methods, but not all risks can be avoided.

Regulations on beverages and food products are being tightened worldwide, including strengthened taxation on sugar-sweetened beverages driven in part by WHO requests, and insufficient countermeasures over the medium to long term could affect operating results and financial condition. For alcoholic beverages as well, there is growing demand for responsible marketing activities and enhanced responses to alcohol-related issues, and regulations exceeding expectations could lead to a decline in consumption. The Company responds through strengthening low-sugar products, gathering information on policy trends from international organizations and national governments, and industry collaboration through dedicated departments.

Non-conformance with the Company's own quality standards, occurrence of safety issues, or reputational damage arising from the spread of negative information on social media or safety problems with competitors' products, could result in production suspensions, recalls, and damage claims, adversely affecting the Company's brand and credibility. Such risks may arise not only at the Company itself but also at sales partners, suppliers, and contract manufacturers beyond its direct control. Under the "Suntory Group Quality Policy - All for the Quality -," the Company has adopted various standards related to quality, safety, environment, and health, and has established a quality management system.

Water is a key raw material in nearly all products, and water supply shortages due to population growth, water pollution, and climate change may lead to increased manufacturing costs and production constraints. In addition, there is a risk that the introduction of carbon pricing due to increased GHG emissions, declining agricultural yields, and increased costs from plastic-related taxation could affect operating results. As part of its initiatives on key sustainability themes, the Company is promoting water resource conservation, GHG reduction, and improvements to containers and packaging toward realizing a recycling-oriented society.

The parent company, Suntory Holdings Limited, holds 59.48% of the Company's issued common shares and has decision-making and veto power over fundamental matters such as the election and dismissal of directors, organizational restructuring, and dividends, and may exert influence regardless of the wishes of other shareholders. In addition, with numerous group companies both in Japan and overseas, there is a risk that if group governance does not function properly, it could hinder integrated management and the pursuit of global growth strategies. For related party transactions, the Company has established a multi-layered check system including prior deliberation by a special committee, board of directors deliberation, and internal audits, to ensure fairness and transparency. Major transactions with the parent company group in the fiscal year under review included outsourcing of product transportation services of ¥65,900 million and royalty payments of ¥25,855 million, among others.