UNICAFE INC.

Green coffee beans, the main raw material for the company's core product, regular coffee, are almost entirely imported, so fluctuations in international commodity markets and foreign exchange rates directly affect production costs. In addition, rising costs for materials and logistics due to higher energy prices are also a factor pushing up cost of sales. Since selling prices are subject to market competition, there is a risk that cost increases cannot be fully passed through to prices. The company seeks to mitigate this impact by utilizing forward purchasing of green coffee beans and by linking selling prices to cost changes.

Competition in the domestic regular coffee industry is intensifying, already resulting in declining sales and increased costs such as sales incentive payments. Further intensification of competition going forward could further squeeze the Group's sales and profit margins. The securities report does not describe specific countermeasures, and this is recognized as a structural industry issue.

Production facilities for the coffee-related business are concentrated at a single site, the Kanagawa Integrated Plant (Aikou-gun, Kanagawa Prefecture), which absorbed the Yamanashi Plant of Art Coffee Co., Ltd. in January 2022. In the event of a major earthquake or other natural disaster in the eastern Japan region, damage to manufacturing equipment and inventory could occur, potentially causing serious disruption to business continuity. Although facility protection measures such as insurance coverage have been implemented, business continuity risk from concentration at a single site remains.

As pointed out in the so-called "Coffee 2050 Problem," climate change caused by global warming is reducing land suitable for coffee cultivation, potentially making sustainable harvests more difficult. If the stability of raw material procurement is undermined, this could affect business results. As a countermeasure, the company is promoting initiatives to mitigate climate change and reduce and restore the burden on nature, aiming to realize a sustainable society.

The recognition of deferred tax assets is based on estimates of future taxable income. If a review of these estimates becomes necessary, such as due to a shortfall in profit plans, deferred tax assets could decrease. This poses a risk of adverse effects on business results and financial condition. Details are described in the significant accounting estimates section of the consolidated and non-consolidated financial statements.