HOUSE FOODS GROUP INC.

With domestic sales accounting for approximately 70% or more of total revenue, declining domestic demand due to economic slowdown and population decline, post-COVID lifestyle changes, and rising raw material prices and inflation stemming from geopolitical risks are affecting consumer purchasing behavior. If the response is delayed, there is a risk that the value provided (products and services) could be impaired. The Company plans to address this through global expansion of its three value chains—spices, functional materials, and soy-based products—and by strengthening competitiveness through upstream-to-downstream integration.

The Company has recorded goodwill and intangible assets through acquisitions such as Ichibanya Co., Ltd., GABAN Co., Ltd., and Keystone Natural Holdings, and there is a risk of impairment losses if expected cash flows are not achieved due to failure to meet business plans or changes in market conditions, or if anticipated synergies are not realized. This is addressed through ensuring appropriateness and efficiency via the Investment Committee and strengthening check systems at each phase before and after investment.

In the mature food industry, the competitive environment is becoming more diverse due to entry from other industries and the emergence of new technologies. If the Company is slow to strengthen R&D functions, digitalization, and globalization, there is a risk that its competitive advantage will decline and the value it provides will become obsolete. The Company plans to address this by concentrating management resources on priority R&D areas, actively promoting digital investment, and pursuing a co-creation strategy through intellectual property and open innovation.

The Company operates curry and spice products, tofu and PBF (plant-based food), functional beverage products, and others in various countries and regions, but there is a risk of delays in business plans or impairment losses if penetration and establishment within local food cultures falls short of expectations. In addition, delays in responding to laws and regulations in each country or the emergence of country risk could lead to reduced profit-generating capacity and governance dysfunction. This is addressed through diversifying business foundations across multiple regions and continuously developing and securing management personnel.

If quality issues occur with products or services, there is a risk of harm or anxiety to customers' health, damage to corporate brand, loss of social credibility, and increased response costs. The Company has established the Group Quality Assurance Council, obtained and operates international food safety management system certifications such as FSSC22000, and set up a rapid response system based on manuals for major quality incidents.

The Company procures raw materials, including spices, from around the world, and there is a risk of procurement disruption, cost increases, and loss of social credibility due to intensifying competition for food resources, climate change, geopolitical risk, driver shortages in the logistics industry, and transportation delays caused by conflicts, among other factors. This is addressed through stable procurement via diversification of production areas, strengthening human rights due diligence using third-party organizations (Sedex), and revising safety stock standards for key raw materials.

Rising temperatures, extreme weather, and natural disasters pose a risk of procurement disruption, cost increases, and business disruption such as production stoppages. There is also a risk that insufficient or delayed decarbonization efforts could lead to increased costs related to emissions, restrictions on business activities, and damage to corporate value. This is addressed through the introduction of an internal carbon pricing system aimed at carbon neutrality by 2050, a shift toward renewable energy, and information disclosure in line with TCFD.

The Company manages information related to development, production, logistics, sales, and labor, as well as customers' personal information from mail-order sales, using numerous IT systems. There is a risk that cyberattacks or other incidents causing system failures, information leaks, or data tampering, or the external leakage of company information due to increasingly diverse work styles, could affect the Company's financial position and social credibility. This is addressed through comprehensive strengthening of the organizational structure for information security, including overseas locations, and the development and training of incident response manuals.

There is a possibility that procurement costs will increase due to exchange rate fluctuations for raw materials sourced from overseas, and there is a risk of foreign exchange gains or losses arising from foreign currency-denominated receivables and payables. The overseas sales ratio is currently just under 30% but is expected to increase in importance going forward, and the yen conversion of consolidated financial statements is also affected by exchange rate fluctuations. This is addressed through hedging via forward exchange contracts and currency swaps, increasing domestic inventory of imported raw materials, and hedging interest rate fluctuation risk through interest rate swaps and other instruments.

Laws and regulations in Japan and overseas are being newly established or revised, and the norms that companies must comply with are becoming increasingly diverse. If the Company fails to identify and respond to these in a timely manner, there is a risk of restrictions on business activities, loss of customer benefit, increased costs for handling penalties, and decline in corporate value due to loss of credibility. This is addressed through the establishment of the Group CSR Committee and Compliance Promotion Committee, the development of internal and supplier helplines, and information gathering and practical response by departments in charge of various laws and regulations and the legal department.