SHINYEI KAISHA

Extreme weather and natural disasters caused by climate change, infectious disease outbreaks, and geopolitical risks such as wars and conflicts could cause delays or interruptions in the procurement of raw materials, production and processing, sales, and logistics. Depending on the direction of U.S. trade policy, indirect effects may also arise through domestic and overseas economic conditions, foreign exchange rates, and business partners. The Group manages these risks in an organized manner through the Internal Control Committee, based on the "Shinyei Group Risk Management Regulations."

The Group may become a party to lawsuits or other legal proceedings in the course of conducting business in Japan and overseas. Although a class action lawsuit filed in the United States in 2014 concerning alleged antitrust law violations has reached settlement in all cases within the U.S., developments in lawsuits and other proceedings filed outside the U.S. could affect the Group's financial position and business results.

The Group relies heavily on imports from China for many food-related products and raw materials, and procurement could become difficult due to unforeseen events such as changes in China's political and economic situation, legal amendments, natural disasters, or infectious disease outbreaks. While efforts are being made to reduce dependency risk by developing procurement routes outside China, risk remains for products with high dependency on specific countries, regions, or suppliers.

Although the Group has established quality standards and a thorough management system at domestic and overseas production sites and partner factories, unexpected problems in manufacturing or sales, such as food safety issues, could affect its financial position and business results. In particular, quality problems related to safety and reliability in the food-related business pose a risk directly linked to business continuity.

As dependency on information systems in business activities increases, system failures caused by external or human factors such as disasters or cyberattacks could result in business suspension or leakage of confidential or personal information, potentially disrupting business continuity. While the Group strives to protect systems and data through enhanced security measures, it is difficult to eliminate such risks entirely.

The Group is subject to various laws and regulations, including the Food Sanitation Act, the Building Standards Act, and the Antimonopoly Act, and changes to laws and regulations or measures and legal proceedings by regulatory authorities could affect its financial position and business results. As the Group operates across a wide range of business areas, it must comply with multiple regulations simultaneously, creating a risk of increased costs to respond to changes in the regulatory environment.

Due to the Group's business structure, in which domestic sales collection periods are longer than payment terms for imported goods, the burden of working capital is significant and interest-bearing debt is relatively large. Major changes in the financial system or financial conditions, or changes in the lending stance of financial institutions with which the Group transacts, could affect fund procurement and borrowing terms, and a rise in market interest rates could increase fund procurement costs such as interest expenses.

While the Group manages receivables through its own credit management system to address credit risk arising from customer bankruptcies and similar events, if unexpected bad debt risk materializes due to changes in the economic environment, this could hinder the collection of trade receivables and affect the Group's financial position and business results.