Delsole Corporation

If sanitation issues such as contamination by foreign objects, distribution of defective quality or mislabeled products, or food poisoning occur, this could have a significant impact on business performance. The Company is working to strengthen its quality assurance system by adopting FSSC22000 and ISO22000 management methods, but responding may become difficult if concerns about food safety across society heighten or if events exceeding expectations occur. For the Company, which upholds "food safety and peace of mind" as its management philosophy, this is one of the most critical risks, including the risk of brand damage.

If domestic factories suffer serious damage from disasters or accidents such as earthquakes or typhoons, production activities could be halted, potentially having a significant impact on business performance. The Company is working to minimize financial impact through the establishment of an emergency crisis management system and the use of insurance, but responding may become difficult in situations exceeding expectations, such as multiple factories being damaged simultaneously. In addition, consumption slowdown and supply chain disruption due to the spread of diseases such as COVID-19 are also recognized as factors affecting business performance.

Cheese, the main raw material, is dependent on imports, and prices could fluctuate significantly due to heightened geopolitical risk, global supply-demand gaps, and droughts caused by climate change. Flour is also affected by international market conditions, creating a risk that rising raw material costs will squeeze business performance. The Company works to stabilize costs through collecting and analyzing market information, diversifying procurement sources, and reviewing purchase contract methods and timing, but depending on price trends, a significant impact on business performance may be unavoidable.

Some products imported from overseas are contracted in foreign currency, so exchange rate fluctuations directly affect procurement costs. The Company hedges to a certain extent through forward exchange contracts, but if sharp exchange rate fluctuations occur, this could have a significant impact on business performance. Since major raw materials such as cheese are dependent on imports, in a yen-depreciation phase, rising raw material costs and foreign exchange risk combine structurally to worsen business performance.

Against the backdrop of regulatory responses (such as the "2024 Problem") and labor shortages, logistics costs including transportation and storage costs continue to rise. The Company is working to build a stable logistics system through collaboration with logistics providers and to optimize inventory, but if increased costs cannot be offset through production rationalization or pass-through to sales prices, this could have a significant impact on business performance. Rising logistics costs are a structural issue across the industry and are recognized as a medium- to long-term risk.

Due to the diversification of employment environments and intensifying competition for recruitment, if the Company is unable to secure and develop capable human resources as planned in each business, this could hinder business activities and affect business performance. The Company recognizes that securing and developing human resources is important for its sustainable growth, but specific details of countermeasures are not disclosed in the securities report. Labor shortages in the manufacturing and food industries are a structural problem, and there are concerns about the impact on factory operations and sales activities.

If the earnings or financial condition of business partners such as sales customers or store owners deteriorate sharply, this could hinder the collection of accounts receivable, deposits, and guarantee money, thereby affecting business performance. The Company works to thoroughly manage credit and preserve receivables, but responding may become difficult in the event of sudden changes in the economic environment. In particular, the risk of collecting deposits and guarantee money from store owners requires attention as a risk specific to business formats such as franchising.

The Company is subject to a wide range of legal regulations, including the Food Sanitation Act, the Act against Unjustifiable Premiums and Misleading Representations, environmental and recycling-related laws, and the Health Promotion Act, and if these regulations are strengthened, compliance costs could increase, affecting business performance. In the food industry, the trend toward stricter regulation from the perspective of consumer protection and environmental regulation continues, creating a risk that increased compliance costs will squeeze earnings.

The Company works to properly manage and prevent leaks of personal information related to customers, employees, and shareholders, but if information is leaked due to unauthorized access or other causes, this could damage social trust and result in payment of damages, affecting business performance. As cyberattacks become more sophisticated and diverse, continued strengthening of information security measures is required.

The Company has implemented necessary impairment processing for its held fixed assets at present, but if economic value declines due to future deterioration in market conditions or decreased demand, additional impairment processing may be required, affecting business performance. For the Company, which owns production facilities such as factories domestically, there is a risk that changes in consumption trends and worsening competitive conditions could lead to reduced profitability of fixed assets.