O'will Corporation

Net sales to ITO EN, LTD. in FY2026 (ending March 2026) reached ¥6,369,964 thousand (15.2% of group net sales), indicating a high degree of dependence on a single customer. Should changes occur in this customer's order trends or should transactions be scaled back, this could have a direct and material impact on the Group's net sales and earnings. Although a basic transaction agreement is currently in place and business has remained stable, diversifying the customer base to reduce this dependence remains a challenge.

Prices of food raw materials such as vitamins, sugars, dairy products, fruit juices, and fish roe are determined by market conditions, so a surge in market prices raises procurement costs and pressures earnings. Milk prices are determined through negotiations among the government, dairy farmers, and dairy manufacturers, creating a risk of time lag in passing on cost increases, while agricultural and processed marine products are also affected by weather conditions and catch volumes in producing regions. The Group seeks to diversify risk by securing multiple suppliers and continuously monitoring market conditions, but complete avoidance is difficult.

The beverage industry, the Group's core market, is saturated, and competition among tea-based beverage manufacturers in particular has intensified year by year. If intensified competition leads to further price competition, the resulting decline in profitability could affect the Group's financial position and business results. The Group is responding through differentiation strategies and strengthened product development capabilities, but the risk of a deteriorating market environment persists.

Because sales of raw materials for beverages and large ceiling fans are concentrated in the first half of the fiscal year, operating income for FY2026 (ending March 2026) is heavily skewed, with 77.3% in the first half and 22.7% in the second half. Since seasonal fluctuation in selling, general and administrative expenses is small, profitability in the second half tends to be structurally lower, and significant fluctuations in first-half orders due to poor weather or other factors could have a large impact on full-year results. The Group is working to secure full-year sales growth by strengthening sales of machinery and other products in the second half.

Transactions in foreign currencies arise in the buying and selling of goods with overseas business partners, and fluctuations in exchange rates upon conversion to yen may affect the Group's financial position and business results. The Group hedges this risk through forward foreign exchange contracts, but complete avoidance is not guaranteed, and fluctuation risk among major currencies, including the US dollar, remains. Currently, exchange rate uncertainty is increasing due to policy shifts in the United States and heightened geopolitical risk.

The Group conducts transactions in raw materials and goods in overseas markets including the United States, Europe, Asia, South America, and Africa, and is thus exposed to risks such as unexpected changes in laws and regulations, adverse political and economic factors, and social disruption caused by war, terrorism, and similar events. Currently, uncertainty in the global economy is becoming apparent due to policy shifts in the United States and heightened geopolitical risk, and if a counterparty country were to halt imports or exports, this could directly disrupt procurement and sales. The Group seeks to diversify this risk through diversification of business partners and procurement sources.

In the food and beverage industry, consumer demands for safety and reliability have become stricter year by year, and an unexpected quality problem could result in substantial costs, damage to social credibility, and a decline in sales. The Group has implemented measures such as establishing a quality control committee, conducting on-site factory audits, promoting traceability, and limiting transactions to trusted raw material manufacturers, but complete elimination of this risk is difficult. Strengthened compliance obligations resulting from revisions to the Food Sanitation Act and similar regulations may also increase quality control costs.

The Group utilizes IT systems to improve operational efficiency and internal communication, and if information leakage, data loss, or system failure were to occur due to cyberattacks or other causes, business activities could be temporarily disrupted, affecting the Group's financial position and business results. The Group strives to clarify authority and responsibility, establish checking and approval systems, and strengthen defenses against external intrusion, but risk stemming from the increasing sophistication of cyber threats persists.

The Group positions M&A as a key strategy for accelerating growth and strengthening its earnings base. If unforeseen risks materialize after an M&A transaction or if a business plan fails to progress as expected, this could have a material impact on the Group's financial position and business results, including through recognition of goodwill impairment losses. The Group conducts thorough due diligence prior to executing investments to mitigate risk, but the risk of failing to achieve plans due to changes in market conditions and other factors cannot be eliminated.

The Group stores goods in consignment warehouses across the country, and its subsidiaries Kaisen Co., Ltd. and NIITAKAYA U.S.A. INC. own factory facilities, meaning that the occurrence of a natural disaster could disrupt product quality, logistics functions, and production activities. In addition, abnormal weather such as cool summers, warm winters, and prolonged rainy periods, as well as typhoons, can raise procurement prices for raw materials used in beverages and processed agricultural and marine products and lead to lost sales opportunities. The long-term effects of climate change are also increasing the risk of undermining the stability of raw material procurement.