HOSHIZAKI CORPORATION

The tariff policies of the U.S. Trump administration and countermeasures by various countries, including the suspension of rare metal exports, along with global supply chain disruptions, may cause difficulties in procuring materials and parts, potentially leading to higher manufacturing costs. Requirements to increase the ratio of North American procurement due to USMCA and other factors may also force a review of manufacturing locations. In response, the Company is actively adopting alternative materials and parts, diversifying procurement sources, and revising product prices.

Heightened geopolitical risks, including the U.S. Trump administration, Russia's invasion of Ukraine, the situation in Palestine and the Middle East, and worsening Japan-China relations, may affect the performance of the foodservice industry and distribution industry, which are the Company's major customers. Deteriorating economic conditions due to rising prices and monetary/economic policies in various countries could lead to supply chain disruptions and higher manufacturing costs. The Company has established a system to visualize risks for each group company and respond appropriately in a timely manner.

Against the backdrop of intensifying competition in the foodservice industry, if low-price competition with competitors exceeds the Company's cost reduction capabilities, it could adversely affect the Company's financial position and business results. This impact could be further amplified if combined with difficulties in raw material and parts procurement and rising manufacturing costs. The Company is responding by introducing differentiated products such as natural refrigerant products and vacuum microwave thawing machines/rapid freezers, and by optimizing manufacturing locations and supply methods.

If unauthorized access, information leakage, or destruction occurs due to cyberattacks or other causes affecting customers' personal information and confidential information, or internal confidential information related to technology, contracts, or personnel, business continuity could be disrupted. In addition to implementing entry and exit countermeasures, system and network monitoring, and targeted attack email training, the Company has taken out global cyber insurance since 2022 and adopted priority-response security vendors.

The Company is subject to a wide range of regulations in various countries, including food hygiene regulations, environmental protection regulations, anti-bribery laws, import/export regulations, human rights and labor-related laws, antitrust laws, and intellectual property-related laws. Violations could result in restrictions on business activities and impacts on financial position. The Company is also required to respond to the legislation of human rights due diligence being enacted in the EU and other countries. It is addressing this through compliance training for all employees led primarily by the Legal Department, use of an internal reporting system, and continuous monitoring of legislative trends.

If quality issues exceeding expectations occur due to market complaints or other causes, this could result in costs for inspecting and replacing defective products and parts, as well as damage to corporate image and social reputation. The Company has established a collaborative system among the Quality Assurance Department, Central Research Laboratory, and Legal Department, and has taken out product liability (PL) insurance to mitigate the impact on financial position. It is also working to reduce the risk of product damage during transportation through loss prevention activities utilizing insurance company expertise.

For the Company's core products, Ice Makers and Refrigerators, weather during peak demand seasons directly affects business performance. In addition, large-scale natural disasters such as earthquakes and floods/storms, as well as terrorism and infectious diseases, could significantly impact production, sales activities, and the supply chain. The Company conducts risk surveys at factories worldwide and works to minimize impact through BCP development, procurement of necessary insurance, and arrangement of foreign currency deposits incorporating earthquake protection.

Since production is centered on demand areas, the impact on import/export transactions is limited; however, foreign exchange fluctuations may affect manufacturing costs, sales, and comprehensive income through foreign currency-denominated material procurement and yen conversion in the consolidated financial statements. Foreign currency-denominated deposits and investments in overseas affiliated companies may also be affected in terms of financial position due to fluctuations in exchange rates at the time of conversion. The Company continuously monitors the impact of foreign exchange conversion by major currency and implements measures such as position reviews as needed.

In corporate acquisitions and business alliances aimed at expanding the existing business foundation, creating synergies, and entering new business fields, if the post-acquisition business plan does not progress as originally planned, impairment of goodwill and other assets or the need for substantial additional funding may occur. Prior to acquisitions, the Company conducts due diligence by external experts and verifies the validity of business plans, and after acquisitions, it promotes PMI (post-merger integration) to work toward achieving the business plan.

The Company has approximately 740 research and development personnel, approximately 3,500 domestic sales personnel, and approximately 2,800 service staff. However, if it becomes difficult to recruit, train, and retain excellent personnel in Japan and other countries facing continued declines in the working population, this could affect business results. The Company is working to reduce the risk of a declining working population by promoting labor-saving and unmanned production processes and further expanding production in demand areas.