ITO EN,LTD.

Beverage product prices continue to decline, and competition among beverage companies is intensifying due to the expansion of digital marketing and the D2C market. The company has a high dependence on "Japanese tea beverages," which account for 63% of sales volume, and sales growth has notably stagnated due to changes in consumer preferences and shortening product life cycles. The company is responding through measures such as green-tea-centered product offerings, strengthened route sales, and expanded market research and analysis capabilities; however, if these measures fail to sufficiently adapt to changes in the market environment, this could affect business performance and financial condition.

A decline in the farming population and tea plantation area, combined with increasing demand for tea leaves for beverages, is raising concerns about a deterioration in the tea leaf supply-demand balance. In addition, rising petroleum prices affecting imported raw materials (grains, vegetables, etc.) and PET container materials, as well as exchange rate fluctuations, are pushing up procurement costs. The company is working to ensure stable supply and control costs through tea-producing region development projects, establishing production methods that do not rely on manual labor, and reviewing product design and materials used; however, if these responses are insufficient, business performance and financial condition could be affected.

If abnormal weather, droughts, changes in water resources, etc. caused by global warming lead to poor harvests of key raw agricultural materials such as tea, barley, coffee, vegetables, and fruit, this is expected to result in higher procurement prices and lost sales opportunities. In addition, if natural disasters such as earthquakes or the spread of infectious diseases exceed anticipated scope, this could disrupt head office functions and production and logistics systems. The company is responding through scenario analysis based on TCFD recommendations, diversification of production regions, review of BCP, and diversification of production plants and delivery methods; however, if the company's environmental consideration in business activities is judged to be insufficient, there is also a risk of decline in brand value.

While conducting business in North America, China, Southeast Asia, Australia, and Europe (full-scale entry in 2024), there is a risk that worsening conflicts between nations, wars/conflicts, protectionist policies, and changes in laws and regulations in each country could give rise to boycotts, tariff increases, and production suspensions. In addition, legislation on environmental and human rights due diligence is advancing, particularly in Europe, and if an appropriate assessment framework covering the supply chain cannot be established, this could lead to legal action, fines, and decline in brand value. The company is strengthening its response through the International Division, including increasing production sites, establishing business withdrawal criteria, and developing a system for confirming local laws and regulations.

If hygiene issues such as foreign object contamination, inappropriate allergen labeling, use of prohibited additives, residual pesticide problems, or food poisoning occur, this could have a material impact on business performance and financial condition. There is a similar risk if issues extending across the industry or society as a whole occur that go beyond the company's own efforts. The company has established a system including proprietary standard inspections by the Quality Control Department and Quality Assurance Department, maintenance and management of traceability systems, audits of outsourced factories, and the permanent establishment of a "Product Risk Response Committee."

If information system failures occur due to cyberattacks, this could lead to interruption or suspension of various operations, financial damage, and loss of social credibility. The company holds a substantial amount of customer personal information through route sales, mail order sales, consumer campaigns, and the "New Haiku Grand Prize," and there is a risk that unauthorized access, virus infection, or similar incidents causing loss or leakage of information could damage the company's credibility. The company addresses this through automated detection and removal systems for unauthorized access and malware, collaboration between the DX Security Promotion Department and information security companies, and thorough compliance with its personal information protection policy.

The company employs a system combining tea leaf product and beverage raw material manufacturing at in-group factories with beverage product manufacturing at outsourced factories outside the group, but there is no guarantee that impacts on production and logistics can be completely eliminated due to natural disasters or the worsening "2024 Problem" in the logistics industry. If unforeseen circumstances occur, stable supply of products may become difficult, potentially affecting business performance and financial condition. The company addresses this by building a production and logistics system across five blocks nationwide, securing multiple outsourced factories, and securing overall logistics capacity through collaboration with other industries.

The company is subject to a wide range of legal regulations, including the Food Sanitation Act, Product Liability Act (PL Act), labeling-related laws and regulations, labor-related laws and regulations, competition-related laws and regulations, personal information protection regulations, and environmental laws and regulations, and violations could result in legal penalties, litigation, social sanctions, and loss of customer trust. There is also a risk of increased cost burden due to regulatory tightening such as new legislation, legal amendments, and climate change countermeasures. The company addresses this through company-wide compliance education led by the Legal Department, promotion of internal controls by the Internal Control Promotion Committee, and the establishment and implementation of human rights due diligence.

If it becomes difficult to secure, retain, and develop management executives and general employees due to intensifying competition for talent, accelerating DX, and increasing demand for and sophistication of required skills driven by the globalization of corporate activities, this could affect business activity and the execution of management strategy. Under the "ITO EN Group Human Resources Policy," the company addresses this by developing an environment where diverse personnel can choose flexible working styles, establishing proprietary self-development and career support programs, and implementing human resource management measures linked to management strategy.

Fixed assets, including business-use real estate and goodwill, may be subject to impairment accounting due to declines in market value or profitability. In addition, the company is subject to tax systems in each country in connection with its overseas business operations, and if impairment losses arise due to unforeseen tax reforms or corrective dispositions from tax authorities, this could have a material impact on business performance and financial condition. The company addresses this through thorough credit and receivables management based on receivables management standards, establishment of an inventory management system, a review framework centered on the Board of Directors to prevent impairment of asset value, and the establishment of an appropriate tax management system based on the "ITO EN Group Tax Policy."