SATO FOODS CO., LTD.

Because sales of the company's core products, packaged mochi (rice cakes, particularly kagami-mochi), are concentrated at year-end, net sales and operating profit are structurally weighted toward the third quarter of the consolidated fiscal year. In the fiscal year under review, third-quarter net sales were ¥17,650,450 thousand (38.0% of the total) with operating profit of ¥1,636,161 thousand, while first-quarter net sales were only ¥7,548,559 thousand (16.2%) with operating profit of just ¥141,597 thousand. This represents a structural risk whereby fluctuations in seasonal demand and trends in year-end sales campaigns have a direct and significant impact on full-year performance.

If issues that threaten the food industry as a whole occur—such as outbreaks of pathogenic viruses, pesticide residues in vegetables, or radioactive contamination—these could exceed the scope of the company's assumptions and response capabilities, potentially affecting business performance. The company is working to strengthen its quality control system through operation of ISO 22000:2018, in-house inspection standards at each manufacturing stage, item-by-item inspection of products, a traceability system, and the introduction of proprietary analytical equipment such as DNA analyzers and scintillation survey meters. However, even with these measures in place, a risk remains that the company would find it difficult to respond if an industry-wide food safety issue were to occur.

The mochi rice and non-glutinous rice used as the main raw materials for packaged cooked rice and packaged mochi are entirely domestically produced, and procurement prices are directly affected by domestic market conditions (such as crop yields). Drawing on its experience during past poor rice harvests, the company strives to curb procurement price fluctuations through appropriate information gathering and inventory management; however, if market conditions move beyond expected ranges, this could affect business performance. Because the procurement structure relies solely on domestically produced rice, alternative procurement means are limited in the event of poor harvests or supply-demand tightness, which heightens this risk.

Procurement prices for packaging materials and other inputs fluctuate with crude oil prices and foreign exchange rates, which could affect business performance. Rising crude oil prices and yen depreciation directly increase packaging material costs, pushing up overall manufacturing costs. The securities report does not disclose specific hedging measures or countermeasures against these fluctuations, leaving the company highly sensitive to changes in the external environment.