DELICA FOODS HOLDINGS CO., LTD.

As the Group's core products are domestically produced fruits and vegetables, significant declines in production and harvest due to abnormal weather or natural disasters could lead to soaring procurement prices and lost sales opportunities. The increasing frequency of extreme weather events worldwide in recent years has amplified the adverse effects on agricultural harvests. As countermeasures, the Group has established a system for procuring imported fruits and vegetables and delivering substitute products, and implements risk-diversified production area transactions with multiple domestic producing regions.

If food safety incidents such as foreign object contamination, defective products, or labeling violations occur, sales could be disrupted and trust could be lost, potentially adversely affecting the financial position and business results. In addition, chain reputational damage caused by food safety issues affecting society as a whole (such as use of unauthorized additives or hygiene management issues at restaurant companies) that are not directly attributable to the Group could also have financial impacts. As countermeasures, the Group promotes acquisition of ISO22000 certification at all plants, acquisition of FSSC22000 certification at major sites, and exchange of quality information with suppliers.

If infectious diseases such as novel coronavirus, influenza, or norovirus spread among employees, temporary operational suspensions and other effects could adversely affect the financial position and business results. Given the nature of the food manufacturing business, balancing infection prevention with business continuity is a particularly important issue. As countermeasures, the Group has established a management system for prevention and infection spread prevention, introduced telework and staggered working hours, developed BCP measures, and conducts daily monitoring of order, manufacturing, sales, inventory, and logistics status.

Increases in start-up costs such as personnel expenses and consumable supplies expenses, as well as increased depreciation expenses associated with the construction of new plants (FS centers), could temporarily adversely affect the financial position and business results. The Osaka FS Center began operations in April 2024, and continued capital investment is planned. Furthermore, in the event of a sharp decline in sales due to abrupt changes in the business environment, disposal of equipment and impairment losses could occur, causing further adverse effects.

Funds for capital investment in plants, distribution centers, and other facilities are primarily raised through borrowings from financial institutions, and the dependence on interest-bearing debt for the fiscal year ended March 2026 was 37.1% (interest-bearing debt balance of ¥10,962 million out of total assets of ¥29,514 million). Depending on future capital investment trends, dependence on interest-bearing debt may increase further, and in a rising interest rate environment, increased financial costs could adversely affect the financial position and business results.

Legal regulations such as the Food Sanitation Act, the Food Recycling Act, the Water Pollution Control Act, and the Product Liability Act (PL Act) apply to the Group's Fruits & Vegetables Business, and if these regulations are strengthened in the future, new cost burdens may arise. In particular, strengthening of regulations under the Food Sanitation Act and the Food Recycling Act would directly affect business operating costs. The Group is thoroughly complying with laws and regulations and working on reprocessing of food waste, but the costs of responding to regulatory changes could adversely affect the financial position and business results.

In regions where direct delivery is not possible, the Group entrusts product manufacturing and delivery to outsourcing partners, and quality problems at these partners could lead to misunderstandings about the Group or reputational damage. If an outsourcing partner delivers products lacking food safety against the Group's intentions, it could directly and adversely affect the Group's financial position and business results. As a countermeasure, the Group provides quality control guidance to outsourcing partners, but there are limits to fully controlling the actions of outsourcing partners.

Some loan agreements with financial institutions include financial covenants related to consolidated or consolidated subsidiaries' net assets, ordinary income/loss, and other metrics, and if business performance deteriorates, breaching these covenants could result in a demand for early repayment of borrowings. As of the end of the consolidated fiscal year under review, there was no breach of financial covenants, but depending on future business performance trends and fluctuations in financial indicators due to capital investment, a breach may occur.