DyDo GROUP HOLDINGS,INC.

Japan's declining birthrate, aging population, population decline, and increasing labor market fluidity are making it difficult to secure new human capital, which could have a material impact on stable business continuity. In particular, a shortage of operational personnel in the domestic beverage business leading to a decrease in the number of operating vending machines, difficulty securing specialized personnel for the pharmaceutical-related business, and a shortage of manufacturing personnel in the food business are recognized as risks that may materialize over the medium to long term. As countermeasures, the Group is promoting AI-driven smart operations, introducing a human capital development system through "DyDo Career Create," and installing and updating labor-saving equipment.

Coffee beans, the main raw material for the domestic beverage business, are an internationally traded commodity, and in addition to fluctuations in commodity prices and exchange rates, rising energy costs could combine to drive up procurement costs, which could have a material impact on business results. Since October 2022, the Group has implemented phased price revisions in the domestic beverage business and food business, working to improve its revenue structure by securing appropriate gross margins. It is also continuously reviewing raw materials, supplies, and suppliers, and considering multiple sourcing options.

Labor shortages and stricter compliance requirements have driven a significant increase in logistics costs and heightened supply risk due to tight logistics capacity, a trend expected to continue for the foreseeable future, which could have a material impact on business results. As a countermeasure, the Group is promoting the establishment of a stable logistics network and reviewing delivery bases through DyDo Shibusawa Group Logistics Co., Ltd. (established in June 2018), a joint venture with Shibusawa Warehouse Co., Ltd. The pharmaceutical-related business and food business are also working to improve delivery efficiency by expanding the use of outsourced warehouses.

Surging material and crude oil prices and sharp exchange rate fluctuations stemming from the Russia-Ukraine situation and the Palestine-Israel situation are increasingly likely to affect domestic business activities as well. In overseas business operations, various risks exist, including differences in laws, regulations, and systems, political, economic, and social conditions, culture and business customs, and exchange rate fluctuations in each country. As a countermeasure, the Group's holding company has established a system in which its Overseas Business Division manages and oversees overseas subsidiaries, and is restructuring its overseas beverage business strategy by adding a new Poland beverage business alongside its existing Turkey and China beverage business platforms.

In addition to the global strengthening of laws and regulations aimed at curbing climate change, if physical risks related to the supply chain materialize—such as depletion of water resources, impacts on raw materials including coffee, and damage to manufacturing facilities from large-scale natural disasters—this could have a material impact on business results. In addition, changes in stakeholders' assessment of environmental response significantly affect consumers' choice of products and services. As a countermeasure, the Group continuously assesses actual conditions and considers countermeasures based on the TCFD framework, managing this by linking the Group Risk Management Committee with the Group Sustainability Committee.

Because the cumulative inflation rate in Turkey over three years has exceeded 100%, the Group has been applying accounting adjustments to its Turkish subsidiary in accordance with IAS 29, "Financial Reporting in Hyperinflationary Economies." If inflation worsens further, the resulting adjustment amounts could become substantial and have a material impact on business results. There is also a risk that impairment losses may be required if the restated amounts of fixed assets, including trademark rights, exceed their recoverable amounts. As countermeasures, the Group is strengthening revenue management and cash conversion cycle management by the holding company's Finance Department, securing appropriate gross margins through ongoing price revisions, and expanding export transactions from Turkey.

The vending machine channel, the core of the domestic beverage business, faces challenges including a declining trend in the total number of vending machines across the market due to operational labor shortages and reduced profitability from surging raw material and supply costs; failure to respond promptly to these changes in the environment could have a material impact on business results. As a countermeasure, the Group is working to advance smart operations utilizing the latest technology while promoting the rollout of carbon-neutral "LOVE the EARTH" vending machines. The Group aims to establish a sustainable vending machine business model, including through collaboration with vending machine placement partners.

The orphan drug business operated by DyDo Pharma Co., Ltd. (established in January 2019) entails uncertainties such as the risk of development delays or discontinuation, delays or changes in regulatory approval, and the risk that drug pricing may be set lower than expected. During the upfront investment period until the business base stabilizes, the Group expects to continue posting operating losses and negative cash flow, which could affect business results. As countermeasures, the Group has appointed independent outside directors with expertise in the pharmaceutical industry, strengthened monitoring of the business plan, and is developing expert personnel in business development, regulatory affairs, and medical affairs.

In the domestic market, where population decline and the declining birthrate and aging population continue, the risk that a shrinking working-age population will affect the sales, manufacturing, logistics, and recruitment areas of the supply chain is increasing over the medium to long term. Under an evaluation applying the TCFD scenario analysis framework, the Group recognizes that this could have a particularly material impact on securing human capital toward 2026 (medium term) and 2030 (long term). As countermeasures, the Group is continuously strengthening investment in human capital to develop personnel and improve productivity, promoting smart operations, installing and updating labor-saving equipment, and implementing new initiatives for new graduate recruitment.

The Securities Report explicitly states that various risks, including large-scale disasters, legal regulations, and information security, could affect business activities. In response to these risks, the Group has created a "risk map" analyzing the degree of impact and likelihood of occurrence, and promotes risk management by determining key risks in response to changes in the environment and formulating countermeasures. The Group Risk Management Committee, chaired by the Representative Director and President, meets at least twice a year to review risk management policy, evaluate key risks, approve countermeasures, and verify the effectiveness of control status.