NIHON SHOKUHIN KAKO CO., LTD.

Corn, the main raw material, is linked to the Chicago grain market, and procurement costs fluctuate with changes in foreign exchange rates and ocean freight rates. Factory fuel (city gas and heavy oil) is also linked to crude oil prices, becoming a factor in rising production costs. If price increases cannot be passed on to product sales prices, there is a possibility of impact on business performance, financial position, and cash flow. The Company works to reduce the impact of such fluctuations through hedging measures based on its market risk management regulations.

Imported corn and other materials may become difficult to procure due to political instability or natural disasters in exporting countries, and domestically sourced materials also carry the risk of becoming unavailable due to natural disasters and other causes. In addition, if corn meeting quality standards required under import regulations such as the Food Sanitation Act cannot be secured, this may also affect business performance. From a BCP perspective, the Company secures multiple suppliers and responds by selecting and changing exporting countries and shipping ports.

Since April 1, 2024, revisions to the operation of the isomerized sugar adjustment fund system based on the policy direction of the Ministry of Agriculture, Forestry and Fisheries have resulted in the continuous occurrence of isomerized sugar adjustment charges. If adjustment charges, which may fluctuate quarterly, cannot be appropriately reflected in sales prices, there is a possibility of impact on business performance, financial position, and cash flow. The Company continues to make requests to the Ministry of Agriculture, Forestry and Fisheries for the appropriate operation of the system.

The Company is subject to numerous laws and regulations, including the Companies Act, tax laws, the Food Safety Basic Act, the Act on Pharmaceuticals and Medical Devices, and the Antimonopoly Act, and failure to comply with these could lead to a decline in social credibility and impact business performance. In 2022, an embezzlement of funds by a former employee spanning approximately 10 years was discovered, representing an instance in which compliance risk materialized. The Company has established a recurrence prevention committee and is implementing four measures: strengthening internal controls, improving confidence in the internal whistleblowing system, improving organizational culture, and building a fraud prevention framework.

The Company's main production base is concentrated in the Tokai region (Fuji City, Shizuoka Prefecture), and if a large-scale earthquake or other disaster occurs, there is a possibility of significant disruption to production facilities and operations, as well as substantial recovery costs. The location is in an area at high risk of events such as a Nankai Trough earthquake, raising concerns about impact on business continuity. Although reinforcement work and other countermeasures have been implemented, the impact on business performance, financial position, and cash flow cannot be ruled out depending on the extent of damage.

The Company sells starch and processed products to the food industry, paper manufacturing industry, and other sectors, and trends in imports of competing products as well as domestic market conditions may affect business performance. Heightened geopolitical risk stemming from the situations in the Middle East and Ukraine has led to sustained elevated raw material and fuel prices and procurement uncertainty, while domestically, procurement of materials such as packaging containers also remains unstable. The future competitive environment and market trends remain difficult to predict.

In addition to demands for higher transportation fees in response to the "2024 Logistics Problem" arising from work-style reform, there are concerns about surging transportation costs and delivery restrictions due to fuel procurement difficulties amid the worsening situation in the Middle East. Furthermore, under the amended Logistics Efficiency Act, from fiscal 2026, shippers handling cargo above a certain volume will be designated as specified business operators and required to appoint a logistics oversight manager and formulate and implement medium- to long-term plans. The Company is promoting logistics efficiency and strengthening its management framework while continuing to provide careful explanations to business partners.

Since corn, the raw material, is mainly imported from the United States, a weaker yen leads to higher procurement costs, and if this cannot be passed on to product sales prices in a timely manner, profitability is pressured. Since ocean freight rates also fluctuate in foreign currency terms, exchange rate movements affect overall procurement-related costs. In accordance with its market risk management regulations, the Company does not engage in speculative transactions and works to reduce the impact of fluctuations through various hedging measures.