Yoshimura Food Holdings K.K.

The Group procures many of its raw materials and merchandise directly or indirectly from overseas, and there is a risk that a rapid fluctuation in foreign exchange rates could cause procurement costs to surge, resulting in delayed or insufficient pass-through to selling prices. In addition, prices of agricultural and marine products such as wheat, buckwheat, rice, salmon, oysters, and chicken, as well as petroleum products (materials and packaging materials), may surge due to abnormal weather, conflicts, changes in supply and demand, or declining catches. Exchange rate fluctuations also affect business performance and financial position through the translation into yen of the foreign-currency-denominated financial statements of overseas consolidated subsidiaries.

The Company has repeatedly conducted M&A transactions targeting small and medium-sized food companies to expand its business, but if the business plans assumed at the time of acquisition do not progress as planned, impairment of fixed assets or goodwill may occur, which could have a material impact on business performance and financial position. There is also a risk that contingent liabilities or unrecognized liabilities not identified during due diligence may come to light after acquisition, as well as a risk of extraordinary gains or losses arising from business restructuring or the sale of idle assets in connection with management integration. Financing for M&A may also result in increased interest burden from higher borrowings or dilution from the issuance of shares.

As the Group's principal business is the manufacturing and sale of food products, if a hygiene issue such as food poisoning or a safety problem exceeding expectations occurs, there is a risk of product recalls, disposal, business suspension, or claims for damages. Regardless of whether the Group is directly responsible, reputational damage may also lower brand image and affect business performance. As countermeasures, the Group has assigned officers responsible for product development and quality control and has established a group-wide quality control system, but complete prevention of unforeseen incidents cannot be guaranteed.

The Company's business model aims for growth of the entire Group through the growth of its subsidiaries, and the structure is such that the financial position and operating results of each subsidiary have a significant impact on the Group as a whole. If a subsidiary's business execution does not proceed as planned or unexpected fluctuations in performance occur, this directly affects the Group's overall performance. While the Company oversees the formulation of group management strategy and management control, the management complexity is high given the large number of subsidiaries.

The Group is dependent on specific suppliers for key raw materials such as IQF oysters (used as the raw material for Oven Co., Ltd.'s mainstay product "Kaki Fry"), as well as shrimp, scallops, crab, lobster, seaweed, and hijiki, making large-scale and stable procurement difficult. If natural disasters, quality problems, or supplier bankruptcy occur, procurement of raw materials could become difficult, potentially affecting business performance and financial position. The Group strives to strengthen information exchange and cooperation with suppliers to secure continuous and stable procurement, but there are limits to securing alternative supply sources.

The Group has subsidiaries, factories, and other facilities throughout Japan and overseas, and there is a risk that natural disasters such as major earthquakes, heavy rains, or tornadoes could damage facilities, cause power outages, or disrupt the supply chain, forcing delays or suspensions in the shipment of products. The occurrence of epidemics such as avian influenza or porcine epidemic diarrhea, or new types of epidemics such as the novel coronavirus, may also result in difficulty procuring raw materials, price surges, reduced consumption, and weak demand from commercial food service users. Such events could also lead to impairment of fixed assets and goodwill through deterioration of subsidiaries' business earnings.

The Company has subsidiaries in Singapore and Malaysia and is expanding its overseas business, but there are country risks such as changes in political and economic conditions, unexpected changes in laws and regulations, natural disasters, social unrest caused by riots, terrorism, or war, rising labor wages, and disruption of the supply chain and distribution network. Should these risks materialize, they could affect the Group's overall business performance and financial position through deterioration in the performance of overseas subsidiaries. The Company intends to continue its overseas expansion, and its exposure to these risks is on an increasing trend.

The Group's main sales channels are wholesalers and major retailers, but mergers and consolidation within the distribution industry are giving rise to large-scale distributors, which may increase downward pressure on prices. If transactions with a major customer are suspended or reduced for any reason, securing alternative channels could be difficult, potentially having a material impact on the business and performance. This impact would be more pronounced in cases of high dependence on a specific major customer.

Subsidiaries engaged in the Manufacturing Business hold substantial fixed assets such as factory equipment, and if business earnings deteriorate or the fair value of fixed assets declines significantly, impairment accounting may need to be applied. In addition, goodwill recorded through M&A may be impaired if the business plans assumed at the time of acquisition are not achieved, which could affect business performance and financial position. As a result of the Group's aggressive pursuit of M&A, the balance of goodwill has accumulated, and the exposure to impairment risk has grown to a substantial scale.

The Group is subject to legal regulations such as the Food Sanitation Act, the Product Liability Act, and the JAS Act, as well as various environmental regulations applicable to factories, and if a violation of laws or regulations were to occur, business activities could be restricted, affecting business performance and financial position. Similar risks could arise from unforeseen future amendments to laws or the introduction of new regulations. As countermeasures, the relevant departments of each subsidiary work together with the officers responsible for product development and quality control and the General Affairs and Compliance Department to ensure legal compliance, but complete prevention cannot be guaranteed.