KITOKU SHINRYO CO., LTD.

Changes in agricultural policy, such as the abolition of rice production adjustment (acreage reduction), farmland consolidation, promotion of crop conversion, and changes in trade policy, may cause fluctuations in the price and volume of raw material procurement centered on domestically produced rice. The Group is working to reduce procurement risk through diversification of contracting methods, while expanding its overseas revenue base and developing new businesses.

Weather conditions and disasters both domestically and overseas, as well as government stockpiling policies and consumption trends in various countries, may cause fluctuations in purchase and selling prices, potentially affecting business results. The Group is working to ensure stable procurement by promoting the spread of heat-tolerant and lodging-resistant varieties, and by broadening procurement areas and diversifying supply routes.

Approximately 37% of net sales are accounted for by rice sales to the top five customers, and if transactions with these customers were to be suspended or significantly reduced, it could have a material impact on business results. The Group is promoting the establishment of a rapid response system leveraging long-standing business relationships, while concurrently pursuing development of new fields.

Approximately 32% of purchases consist of rice procured from Zen-Noh (National Federation of Agricultural Cooperative Associations), and any significant change in procurement volume or price resulting from a change in Zen-Noh's sales policy could affect business results. The Company has a capital and business alliance with Zen-Noh and is working to strengthen this partnership and build an agile procurement system.

If a food safety issue such as avian influenza, pesticide residues, or violation of food labeling obligations were to occur, it could disrupt the procurement and sale of products or result in large-scale product recalls, affecting business results. The Group is pursuing certification based on international standards, working to reduce risks associated with food provision and to build a management system.

The Group is subject to numerous laws and regulations, including the Staple Food Law, the JAS Law, the Rice Traceability Law, the Food Labeling Act, the Act against Unjustifiable Premiums and Misleading Representations, the Act on Promotion of Subcontracting Small and Medium-sized Enterprises, and laws related to work-style reform, and failure to comply could affect business results. The Group strives to grasp the intent of legal amendments at an early stage through information gathering from experts, relevant government agencies, and industry associations, and to respond appropriately.

If a system failure occurs due to a large-scale natural disaster, power outage, equipment defect, computer virus, hacking, or other cyberattack, it could disrupt overall operations including order receipt/placement, factory operations, and attendance management. The Group has implemented multifaceted safety measures, including data backup for core systems and close cooperation with software vendors.

In the event of a large-scale earthquake, typhoon, or other wind and flood damage, or the spread of an infectious disease, business continuity may become difficult due to facility damage or travel restrictions. The Group strives to maintain appropriate business operations through the formulation of a Business Continuity Plan (BCP), its distribution to all employees, periodic drills, and thorough infection prevention measures.

While expanding business in overseas markets is one of the Group's strategies, unexpected changes in laws and regulations, sharp exchange rate fluctuations, and changes in economic or political conditions in various countries may impede business activities. The Group strives for early detection of and swift response to changing conditions through regular meetings with local subsidiaries and information exchange with local partners, diplomatic missions, and specialist offices.

Inventory value in the rice business has increased due to a significant rise in purchase unit prices, and if net realizable value were to decline significantly due to worsening market conditions, the resulting impact on cost of sales and period income would be relatively large. The Group works to mitigate losses by reducing inventory through agile procurement from various production areas and improved accuracy of sales planning.