WATAMI CO.,LTD.

Energy and raw material prices remain elevated due to geopolitical risks (the Israel-Palestine situation, the Russia-Ukraine situation) and oil supply risks stemming from the US-Iran conflict and Strait of Hormuz blockade that began in February 2026. Rising unit costs for food ingredient procurement and increases in container and gasoline prices may put pressure on consolidated business results. As countermeasures, the Group is continuously reviewing and improving its MD (merchandising) system, building a business format portfolio, and promoting labor-saving investment at manufacturing plants.

The izakaya business continues to face a shrinking market, and the business environment remains challenging due to changes in dining styles caused by the COVID-19 pandemic and diversifying customer needs. If the Group fails to adequately respond to price increase pressures, consolidated business results may be affected. The Group is pursuing a growth strategy through strengthening the Takeout & Delivery Format, expanding the Yakiniku Format (Yakiniku no Watami, Kamimura Bokujo) and Special Occasion Format, and advancing the SUBWAY Business acquired through M&A.

While the market is expanding due to the aging society, the competitive environment is intensifying due to an increase in new entrants. Combined with rising gasoline and container prices resulting from surging rice and crude oil prices, this may lead to a decline in market share and profit margins. The Group is responding through strengthening product competitiveness, reviewing its area strategy, company-wide initiatives targeting corporate sales, and labor-saving investment at manufacturing plants.

The Group holds foreign currency-denominated financial assets and operates 81 stores overseas, including franchise stores, and therefore exchange rate fluctuations may generate foreign exchange gains or losses that affect consolidated business results. The Group is also affected by exchange rate fluctuations when translating the local currency-denominated financial statements of overseas group companies into yen. Although the Japan-US interest rate differential is trending narrower, uncertainty remains high due to geopolitical risks and other factors.

In the Domestic Food Service Business and Overseas Business, the Group utilizes company-owned fixed assets for new store openings and renovations, and if store profitability declines due to deterioration in market or business conditions, impairment losses on fixed assets may be required, affecting consolidated business results. The Group works to mitigate this risk through investment risk assessment at the time of store openings and renovations and strategic scrap-and-build initiatives.

The Group holds substantial personal information on customers, employees, and others at its stores and headquarters, and if information leakage or tampering occurs due to increasingly sophisticated and advanced cyberattacks or unauthorized access, this could damage the Group's brand image and social credibility and affect business results. The Group has established a management framework based on its personal information management regulations and information security regulations, and addresses this risk through strengthened employee training, IT-based security enhancement, and oversight and guidance from the Group Risk and Compliance Committee.

If violations of laws such as the Labor Standards Act, harassment, or deviations from internal rules occur, this could lower employee motivation and lead to the loss of talented personnel, making it difficult to secure human resources amid a tight labor market and potentially affecting consolidated business results. In addition to internal education such as harassment training and evaluator training by outside instructors, internal audits, and strengthened monitoring by the Group Risk and Compliance Committee, the Group promotes the

At the Group's six domestic manufacturing sites (four for Food Ingredient Set and ready-to-eat product manufacturing, two for frozen food manufacturing) and overseas manufacturing sites (Hong Kong, Singapore), if operations become unable to continue due to food poisoning incidents, fires, or other causes, this could disrupt the supply of ingredients and products to stores and other outlets, affecting consolidated business results. While the Group mitigates this risk to some extent through site diversification, the risk of accidents occurring at individual sites remains.

The Group operates directly-owned stores, franchise operations, and manufacturing, processing, and sales businesses in Singapore, the United States, Taiwan, Hong Kong, the Philippines, and other countries, and if unpredictable risks arise due to differences in each country's politics, economy, legal amendments, or business customs, this may affect consolidated business results. The Group addresses this through information gathering by overseas local subsidiaries in coordination with the risk management department, under the oversight and guidance of the Group Risk and Compliance Committee.

When conducting M&A, the Group records the acquisition price and goodwill after due diligence, but if the target company's business performance deteriorates and significantly diverges from its business plan, impairment losses may become necessary, affecting consolidated business results. As of the end of March 2026, the goodwill balance was ¥295 million, and the Group provides support for business expansion and productivity improvement to help each business company achieve its business plan.