FOOD & LIFE COMPANIES LTD.

Risk that procurement costs for seafood, rice, and other ingredients rise due to yen depreciation, rising seawater temperatures, international fishing restrictions, inflation, and other factors. If price pass-through is difficult, the increase in cost of sales ratio will directly compress operating profit. The Group is responding by improving procurement efficiency and revising product selling prices, but there is also a secondary risk of customer attrition and declining customer traffic due to price increases.

If food poisoning caused by norovirus, Vibrio parahaemolyticus, or other pathogens, foreign object contamination, or violations of the Food Labeling Act occur, this may result in administrative sanctions such as revocation of business licenses or business suspension, as well as substantial recall costs. Incidents caused by products manufactured at central kitchens or raw materials could spread to a large number of stores and customers, resulting in wide-scale damage. The Group has taken out food poisoning insurance and renewed its management systems, but the portion dependent on third-party suppliers is difficult to control.

Risk that reputational damage spreads rapidly, regardless of whether it is substantiated, due to foreign object contamination in products, inappropriate conduct by employees or third parties, or video postings and comments on social media. Negative reporting about the conveyor-belt sushi industry as a whole may also adversely affect the credibility of all of the Group's stores. Damage to brand image directly leads to a decline in customer traffic and sales, and may have a material adverse effect on business results.

As of the end of the current consolidated fiscal year, the Group operates 234 stores in 9 countries and regions including South Korea, Taiwan, and Singapore, with overseas revenue accounting for approximately 30.6% of consolidated revenue. Changes in local consumer preferences, laws and regulations, and economic conditions, exchange rate fluctuations, and geopolitical risks, as well as import restrictions and reputational damage associated with the discharge of ALPS-treated water from TEPCO's Fukushima Daiichi Nuclear Power Plant, have varying effects depending on the region of operation. As the Group's track record in overseas operations is limited, these issues may have a material adverse effect on financial position, business results, and growth strategy.

If globally common core systems such as supply chain management, in-store order-taking systems, and customer-facing apps are disrupted or halted due to cyberattacks, security breaches, natural disasters, or human error, the impact could extend across all regions of business operation. The Group has a high degree of dependence on external cloud and application service providers, creating a risk that problems at outsourced vendors could directly spread to the business. There are also regulatory risks associated with leakage of confidential information including personal data, damage to brand image, and delayed compliance with data protection laws in various countries.

As of the end of the current consolidated fiscal year, the Group has recognized ¥53,596 million in brand and ¥30,371 million in goodwill (together accounting for 21.1% of total assets), which are subject to annual impairment testing under IFRS. If there is a significant decline in stores' future cash flows or a material adverse change in the business environment, this could materially affect the recoverability of these assets and adversely affect financial position and business results. It is difficult to accurately predict the amount and timing of impairment, creating a risk of recognizing a substantial loss on a one-time basis.

The Group raises funds through borrowings from financial institutions and the issuance of corporate bonds, and there is a risk that interest payment burdens will increase for floating-rate borrowings due to rising market interest rates. Loan agreements are subject to financial covenants, and a breach could result in loss of the benefit of the term and require immediate debt repayment. If refinancing cannot be executed on favorable terms, this may adversely affect financial position and business operations.

Due to Japan's declining working population, decline in the young population, and decrease in the number of foreign students, it is becoming difficult to secure store operation staff, including part-timers and part-time workers. Increased labor market fluidity is also raising the risk of internal talent turnover, and a shortage of highly skilled personnel such as store managers and staff for overseas assignments could delay new store opening plans and overseas expansion. The Group is responding through active investment in human capital, improvement of workplace environments, and revision of personnel systems, but if rising labor costs cannot be passed on to customers, this will adversely affect operating profit.

In addition to competition from family restaurants, fast food, convenience stores, delivery services, and others, competition may intensify due to the slowdown in growth of the overall dining-out market caused by Japan's declining population. An increase in the number of stores in the low-price conveyor-belt sushi industry could lead to a decline in customer traffic per store, and cannibalization between the Group's own stores may also occur. If competitors acquire greater purchasing power and marketing capability through acquisitions or other means, this could reduce the Group's customer traffic and sales per store, adversely affecting financial position and business results.

Rising temperatures due to climate change could lead to reduced yields and quality deterioration of seafood, a key ingredient, and there is also a risk of operational suspension due to drought or flooding. The introduction of carbon taxes and emissions trading systems could increase costs and impose restrictions on business activities, and if the Group's response to environmental issues such as food waste, plastic containers, and food loss is judged to be insufficient, this could lead to reputational decline. The Group is subject to environmental laws and regulations such as the Food Recycling Act, and the costs of responding to stricter regulations may affect business results.