S&B FOODS INC.

In addition to the declining domestic population trend, changes in household structure and diversification of lifestyles and preferences are making the needs required of products more complex. Furthermore, rapid changes in consumer behavior caused by pandemics, natural disasters, geopolitical risks in Ukraine and the Middle East, and economic tensions may affect business results and financial condition. The Group continuously works on product development that responds to changes in the market environment.

Significant increases in raw material prices or shortages in procurement volume may occur due to global climate change, changes in the supply-demand balance, crop failures, fluctuations in international market prices, tariff changes, and long-term exchange rate fluctuations. The Group seeks to secure stable procurement through diversification of production areas, and also works to prevent and reduce human rights risks in the supply chain through its Basic Policy on Sustainable Procurement and Human Rights Policy.

If social issues related to food safety or quality occur, this may have a material impact on business results and financial condition. The Group addresses this through the development and enhancement of a quality control system incorporating FSSC 22000 management methods, enhancement of a production history information management system including traceability, and promotion of food defense; however, the risk remains that events beyond the scope of these initiatives may occur.

The Group is subject to legal regulations such as the Food Sanitation Act, the JAS Act, the Food Labeling Act, the Act against Unjustifiable Premiums and Misleading Representations, and environmental and recycling-related laws, and business activities may be restricted by the strengthening of these regulations or the establishment of new, unforeseen regulations. Although the Group is working to establish a system to comply with legal regulations, changes in the regulatory environment may affect business results and financial condition.

The Group conducts business in various regions around the world, including the Americas, Europe, Asia, Oceania, and the Middle East, and unexpected events resulting from legal changes, political turmoil, tariff fluctuations, international conflicts, pandemics, natural disasters, and other factors in each region may affect business results and financial condition. The Group conducts business activities taking into account the regional characteristics, laws and regulations, and market needs of each region.

The Group manages operations such as development, production, and sales through information systems, and cyberattacks, unauthorized access, computer virus infections, natural disasters, and other factors may cause information system failures or loss or leakage of information, which could disrupt business activities and damage social credibility. The Group has built a management system and implemented information security measures in response to the revised Personal Information Protection Act, but responding to events beyond expectations remains a challenge.

The Group operates production plants such as the Ueda Plant, Higashimatsuyama Plant, and Miyagi Plant, and major damage to facilities from earthquakes or wind and flood damage from typhoons, as well as problems in the raw material supply chain or social infrastructure, could disrupt production. The Group has built a response system through the development of a Business Continuity Plan (BCP) and disaster prevention manuals, together with regular training.

Against the backdrop of Japan's declining birthrate and aging population as well as the globalization of the labor market, increased labor mobility may result in a shortfall in planned recruitment numbers or unexpected loss of personnel, which could indirectly affect business results and financial condition. The Group addresses this by developing competitive compensation systems in the labor market and by considering and implementing various personnel measures.

Against the backdrop of growing attention to climate change and social and environmental issues, the Group is advancing compliance with environmental regulations such as reducing water usage, reducing CO2 emissions, and recycling waste, as well as responding to the TCFD recommendations; however, if social phenomena or regulatory tightening occur beyond the scope of the Group's initiatives, this may affect business results and financial condition. The Group also promotes procurement and production activities that give consideration to social responsibilities such as human rights, labor standards, and the environment.

The Group holds shares for the purpose of maintaining and strengthening stable, medium- to long-term business relationships with major business partners, and depending on stock market conditions, this may affect business results and financial condition. In addition, changes in the assessment of the recoverability of deferred tax assets, fluctuations in the statutory effective tax rate due to tax reform, and the recording of impairment losses due to declining profitability or falling land prices may also affect business results and financial condition.