S.ISHIMITSU & CO., LTD.

In the event of a pandemic such as COVID-19, a wide range of risks could materialize through a severe blow to the foodservice sector, its main market, including decreased demand, supply chain disruption, and financing difficulties. While the likelihood of occurrence is assessed as low, the impact is assessed as high, and the Group continues to consider strengthening sales in unaffected areas such as prepared/ready-to-eat foods and developing new sales channels.

The core business of the Group is trading, and the purchase prices of imported goods are affected by the climate and crop conditions in producing countries, international commodity markets, and exchange rates. Although the Group hedges risk through forward exchange contracts and coffee futures transactions, in cases of sharp or irregular market fluctuations, cost increases may not be fully passed on to selling prices, potentially affecting business performance. Recently, discussions over tariffs and trade regimes among major countries have become more active, and management is taking the lead in responding promptly.

In September 2024, an unauthorized external access resulted in ransomware damage, encrypting some servers (no personal information leakage has been confirmed). If cyber attacks or similar incidents cause information leakage, loss, or various system failures, this could lead to a decline in credibility or temporary suspension of business activities, potentially affecting business performance. Based on the experience of this incident, the Group is further strengthening its security and monitoring systems and rigorously reviewing its personal information management regulations.

There is a risk that significant price increases or shortages in procurement volume of goods may occur due to changes in the global supply-demand balance, poor harvests, political turmoil in sourcing countries, international conflicts, and other factors. In addition, if human rights issues such as child labor or forced labor become apparent within the supply chain, this could damage social credibility and affect business performance and financial condition. The Group continuously works on stable procurement through diversification of production areas and on the analysis, prevention, and reduction of human rights risks.

Geopolitical risks continue to exist, including export/import restrictions and tariff increases arising from U.S.-China tensions, the situation in Russia and Ukraine, conflicts in the Middle East, and tensions in the Taiwan Strait. Should these risks materialize or persist over the long term, they could lead to surging raw material and energy prices, disruption of supply chains, and logistics disturbances, potentially impeding business activities. The Group seeks to avoid significant impact through continuous monitoring of international conditions and strengthening of its supply chain.

Since many of the products handled by the Group are procured from overseas, accidental product incidents or troubles beyond the Group's control could affect its financial condition and business results. While the likelihood of occurrence is recognized as high, the impact of each individual product is assessed as small given the wide variety of products handled. The Group has established a thorough quality control system through quality checks by specialized departments and audits and guidance for overseas manufacturers.

There is a risk of non-collection of accounts receivable and other claims arising from transactions with business partners in Japan and overseas, and a significant deterioration in the creditworthiness of business partners could affect the Group's financial condition and business results. While the likelihood of occurrence is recognized as high, the impact is assessed as small due to diversification of credit exposure. The Group implements measures to protect its receivables through thorough information gathering and credit management, trade credit insurance, and individual provisioning of allowances for doubtful accounts.

With the expansion of overseas business, including export operations and the establishment of overseas sales and manufacturing bases, unforeseeable risks exist such as changes in the political and economic situation, policy changes, natural disasters, terrorism, and civil unrest in the target countries or regions. If such risks materialize significantly or if there is a notable gap from plans, this could affect financial condition and business results through impairment losses and other factors. As the scale of overseas business remains small at present, the impact is assessed as small, and the Group aims to avoid unforeseen situations through detailed information gathering and management.

As of the fiscal year ended March 2026, the balance of interest-bearing debt (including lease liabilities) stood at ¥11,339 million, representing 28.5% of total assets of ¥39,844 million. Should financing be constrained by a significant rise in interest rates, turmoil in financial markets, or a marked deterioration in the Group's creditworthiness, this could affect financial condition and business results through increased funding costs and other factors. The Group aims to lower this level through improved profitability and cash-flow-focused management, while striving to maintain smooth and stable relationships with financial institutions.

There is a risk that major products handled by the Group will be affected by climate change, including the so-called "2050 problem," in which global warming is said to potentially halve coffee-growing areas by 2050. While both the likelihood and impact are currently assessed as low/small, the Group treats this as a long-term theme for its initiatives. It is advancing the calculation and reduction of GHG emissions (Scope 1-3) and promoting the introduction of green roasting machines that utilize biofuel derived from coffee grounds.