HOTLAND HOLDINGS Co., Ltd.

The Group's principal raw material, octopus, is entirely imported from overseas, and its purchase price is directly affected by exchange rate fluctuations. Although the Group hedges through forward foreign exchange contracts, there is no guarantee that appropriate and timely hedging can always be executed, and a significant depreciation of the yen could materially affect business performance through a substantial rise in purchase costs.

Octopus procurement costs account for an extremely large proportion of the Group's overall cost of purchases, and fluctuations in raw material prices and catch volumes in West Africa, China, Vietnam, and other regions directly affect costs. To diversify risk, the Group has established procurement routes across multiple regions and companies, centered on the Mauritania plant of its subsidiary HERO-SARL; however, if market prices surge beyond expectations, this could have a material impact on business performance.

Morio Sase, the founder and President & Representative Director, plays a critical role across the Group's overall business activities, including the determination of management policy and strategy. Should an unforeseen event affect him, smooth business operations could be hindered, making the establishment of a succession framework a key issue.

Strengthening or changes to laws and regulations such as the Food Sanitation Act, the Labor Standards Act, and the Act on the Protection of Personal Information may result in compliance costs. In particular, should a food poisoning incident occur, it could lead to food disposal, revocation of business licenses, suspension of operations, and claims for damages, materially affecting business performance. The Group works to prevent such incidents through strengthened hygiene management based on the "Tsukiji Gindaco Manual" and other guidelines.

The syndicated loan led by Sumitomo Mitsui Banking Corporation and Mizuho Bank, as well as the commitment line and term loan agreements with MUFG Bank and The Norinchukin Bank, contain financial covenants requiring the maintenance of net assets and ordinary income. Failure to meet the prescribed levels could result in higher borrowing rates or demands for early repayment, raising concerns about the impact on business performance and financial condition.

The Group funds new store openings, M&A, and capital expenditures through borrowings from financial institutions, the majority of which bear floating interest rates. In a rising interest rate environment, funding costs could increase, affecting business performance. The Group has established commitment lines and other credit facilities to prepare for funding needs.

There is a risk of impairment losses on fixed assets and lease assets due to underperforming stores. In addition, if goodwill, territory fees, and store opening fees recorded as long-term prepaid expenses in connection with M&A transactions or new business development become subject to impairment due to failure to achieve plans or a decline in valuation, this could affect business performance.

The "Tsukiji Gindaco" business format accounts for a high proportion of sales, meaning that a shift in consumer preferences away from takoyaki and octopus could significantly affect business performance. Furthermore, while the Group has implemented diversified procurement across multiple regions and companies centered on HERO-SARL's Mauritania plant to address the risk of supply disruption in the event that part of its procurement routes are cut off, heightened geopolitical risk could make it difficult to continue such transactions.

In its overseas store development, primarily in Asia, and its overseas procurement of ingredients, the Group faces potential risks related to the political, economic, legal, and exchange rate conditions of the countries in which it operates. While the Group monitors local developments and responds in a timely manner, an unforeseen event could make it difficult to carry out business development as planned, affecting business performance.

The Group is highly dependent on information and communication systems for supply chain management, in-store ordering, and payment processing for food and beverage sales. Should a cyberattack or system failure occur, it could hinder efficient operations and the provision of products to consumers, as well as damage the Group's social credibility. While the Group implements preventive measures to mitigate such impacts, complete protection cannot be guaranteed.