SHINOBU FOODS PRODUCTS CO., LTD.

FamilyMart alone accounts for roughly half of net sales, creating a structure in which changes to that company's management strategy, such as store opening policy or pricing policy, directly and significantly affect the performance of the Group. Although efforts are being made to strengthen the business relationship through product development and quality improvement, the high degree of dependence itself constitutes a structural risk.

Purchase prices of key raw materials such as rice, vegetables, and livestock products are heavily influenced by commodity markets, and there is a risk that purchase prices will fluctuate due to external factors such as unusual weather, geopolitical risk, and exchange rate fluctuations. If the Group is unable to absorb such cost increases, it may adversely affect its business results and financial position.

The Group implements hygiene and quality control based on international certification standards such as ISO22000 and FSSC22000; however, if a fundamental problem with food materials occurs beyond the scope of these initiatives, or even in cases unrelated directly to the Group's own products, there is a risk that social credibility may decline due to reputational damage. Such loss of credibility could directly lead to a decline in sales and deterioration of relationships with business partners.

Over 2,000 part-time workers serve as an important workforce at manufacturing sites, but amid the declining birthrate, aging population, and shrinking labor force, competition for talent is intensifying, creating a risk that securing personnel as planned may become difficult. In addition, labor costs may rise due to responses to legal amendments such as minimum wage increases, which could affect business results.

While the market size of the prepared foods (nakashoku) industry is on an expanding trend, consolidation and reorganization across business formats among business partners such as convenience stores, supermarkets, and drugstores is accelerating, and intensifying competition may affect the Group's business results. There is also an inherent risk that trading conditions may change due to business integration among partners.

There is a risk that poor harvests in raw material producing regions and an increase in natural disasters caused by climate change may lead to higher procurement prices and supply shortages of raw materials. In addition, if demand for products with high carbon emissions decreases due to changes in consumer environmental awareness, it may become necessary to review the product lineup and sales strategy, which could affect business results and financial position.

Eight factories are in operation across an area spanning from the Kanto region to the Chushikoku region, and if a large-scale earthquake, typhoon, or other natural disaster or a major accident occurs, there is a risk that manufacturing and supply may become difficult due to disruption of lifelines, damage to production facilities, and interruption of logistics. If employees contract an infectious disease such as a novel coronavirus, this could also lead to a suspension of factory operations and a decline in sales.

Production, sales, and management information is centrally managed by computer, creating a risk of system failure or information leakage due to cyberattacks, virus infection, or hacking. Although measures such as backups and access authority management have been implemented, if a cyberattack beyond expectations occurs, it may affect business results and financial position.

The Group holds a large amount of tangible fixed assets for business use, and impairment treatment may become necessary due to a decline in market value or deterioration in future cash flows. The application of accounting standards related to impairment of fixed assets may result in the recognition of a significant one-time loss, which could have a material effect on business results and financial position.

The Group complies with legal regulations such as the Food Sanitation Act, the Food Labeling Act, the Water Pollution Control Act, and the Product Liability Act, but there is a risk that the introduction of stricter legal regulations or a stricter interpretation of laws by regulatory authorities may impose substantial legal liability or unfavorable measures. If the costs of responding to legal proceedings increase, it may affect business results and financial position.