KEY COFFEE INC

There is a risk that cost of sales will rise due to decreased production caused by political instability, climate change, and pest damage in coffee bean producing countries, as well as fluctuations in foreign exchange rates and increases in materials and logistics costs stemming from higher resource and energy prices. If price pass-through is delayed, gross profit will decline and profitability will deteriorate. As countermeasures, the Group collects timely and accurate information on price fluctuations from suppliers, diversifies suppliers and production sites, and maintains appropriate inventory levels.

The Group relies on imports for the entire volume of raw coffee beans and a portion of manufacturing-related materials, creating a risk that deteriorating social conditions, natural disasters, or conflicts in import source countries could cause sharp price increases or supply shortages of raw materials and materials. If supply is disrupted, it may become difficult to continue selling products, resulting in a significant decline in net sales. The Group addresses this through supplier diversification, review of standard inventory levels for raw materials, and strengthened collaboration with suppliers.

A delayed response to changes in the consumer market and the diversification of consumer needs poses a risk of declining net sales due to lower selling prices or reduced sales volume. In addition, delayed response to reducing environmental impact, an area of growing consumer interest, could lead to a decline in brand competitiveness. The Group addresses this through enhanced analysis of the competitive environment and consumer trends, as well as strengthening its R&D structure to anticipate market changes.

Intensifying competition with competitors over price and services, as well as excessive competition to expand market share, poses a risk of brand value impairment and declining net sales. Changes in the competitive environment in the coffee market may also adversely affect profitability through intensified price competition. The Group seeks differentiation through the provision of value-added products and services and the continuous development of new products.

There is a risk that internal confidential information, including customer information, could be lost, leaked, or falsified due to natural disasters, equipment failures, computer virus infections, unauthorized access, and other causes. If an information security incident occurs, it could damage brand value and significantly impair corporate value. The Group addresses this through the establishment of various regulations, such as the "Personal Information Protection Regulations" and "Confidentiality Regulations," and by conducting awareness-raising activities.

If a specific customer changes its management policies or transaction terms, resulting in a significant decrease in sales or difficulty continuing the business relationship, net sales could decline significantly. A structure with high sales dependence on specific customers inherently carries vulnerability to the effects of changes in transaction terms. The Group seeks to reduce this risk by maintaining and enhancing cooperative relationships with specific customers.

If a food safety incident occurs due to problems with raw materials or the manufacturing process, it could lead to product recalls or suspension of sales, damaging brand value and significantly impairing corporate value. For a food manufacturer, loss of reliability directly leads to customer attrition and deterioration of relationships with business partners. The Group addresses this through compliance with food-related laws and regulations, establishment of a strict monitoring system to prevent food mislabeling, and acquisition of FSSC22000 certification at all plants.

If environmental changes such as global warming reduce the land suitable for coffee cultivation, making sustainable harvests difficult, stable supply of products could become difficult, leading to a decline in net sales. For the Group, whose core business is coffee, the sustainability of raw material procurement is a critical issue directly linked to its medium- to long-term business foundation. The Group promotes support for coffee producers and measures to address global warming, such as CO2 reduction.

If violations of laws and regulations or actions contrary to societal expectations occur, brand value could be damaged, significantly impairing corporate value. Compliance violations not only carry the risk of administrative penalties and litigation but also directly lead to loss of trust from consumers and business partners. The Group addresses this through the formulation of a code of conduct, training and awareness activities to ensure legal compliance, and the establishment of "Basic Policy on Internal Control Systems."

If changes in employment conditions make it difficult to secure the necessary personnel, it could hinder business continuity. Against the backdrop of the declining birthrate, aging population, and intensifying competition in the labor market, the recruitment and retention of specialized personnel has become a medium- to long-term management challenge. Detailed countermeasures are described in the sustainability-related items (improving employee engagement, promoting diversity).