ZENSHO HOLDINGS CO.,LTD.

There are risks related to food safety issues such as foreign matter contamination and mass food poisoning, as well as product liability (PL Act) risks arising from quality defects or labeling deficiencies. Inadequate quality control of raw materials and products procured from external suppliers may also become the Company's responsibility. While the Group has established a Food Safety Pursuit Division and deployed food safety and quality assurance departments at each company to address these risks, the occurrence of such problems could result in damage compensation, product recalls, and damage to brand image, which may adversely affect business results and financial condition.

There is a risk of procurement instability and price surges for food ingredients due to various factors including geopolitical risks, import/export regulations such as tariffs, epidemics such as BSE and avian influenza, natural disasters, and exchange rate fluctuations. The Group MD Division is centrally implementing risk hedging measures through developing production areas and diversifying procurement, but rising procurement costs directly affect profitability. There is also a coexisting risk of supply disruptions and product recalls due to suppliers' inadequate quality control or fraudulent conduct.

The Group operates directly-managed stores, franchise operations, and food product manufacturing and sales in China, the Americas, Southeast Asia, Europe, and other regions, exposing it to unpredictable country risks such as war, political instability, economic fluctuations, changes in laws and regulations, and natural disasters. Inadequate responses to labor environment and human rights issues in overseas procurement may also affect corporate evaluation and brand value. While an information-gathering system has been established, avoiding all risks is difficult, and this may adversely affect business results and financial condition.

The Company is pursuing a business expansion strategy combining new store openings with M&A, but there are risks that contingent or unrecognized liabilities and compliance issues may come to light after an M&A transaction, or that the anticipated profits and effects may not be achieved due to changes in the market or competitive environment. Although detailed due diligence is conducted by a dedicated department and external experts, such risks cannot be completely eliminated. Should problems arise, this may adversely affect business results and financial condition.

The Group holds numerous tangible fixed assets for stores, goodwill acquired through corporate acquisitions, and intangible fixed assets with indefinite useful lives, creating a risk that impairment processing may be required if expected cash flows are not generated. Given the Group's active pursuit of M&A, the scale of goodwill acquired is large, and a substantial impairment loss recorded during a downturn in profitability could adversely affect its financial condition.

The Group relies on information systems for key operations such as store management, procurement, and distribution, creating a risk that disruptions caused by cyberattacks such as computer viruses or ransomware could impede efficient operations and result in loss of critical data. While the Group IT Division has implemented preventive measures and formulated a BCP, and although no such incident has materialized in the past, complete protection is difficult given the increasing sophistication of attacks.

Securing human resources essential for maintaining store operations is a critical management issue, and if sufficient personnel cannot be secured due to a deterioration in the labor supply-demand balance, this may lead to a decline in service quality and adversely affect business results. While the Company is working to improve the workplace environment through crew meetings, opening in-house daycare centers, and expanding childcare support and shortened working hours for female employees, the tightening labor market resulting from the declining birthrate and aging population continues as a structural risk.

The Group is subject to a wide range of domestic and international legal regulations, including the Food Sanitation Act, labor-related laws, and environmental laws, creating a risk that compliance costs may arise when regulations are tightened. Additionally, should officers or employees violate laws or internal regulations, or engage in conduct deemed socially inappropriate, this may adversely affect business results and financial condition. Although the Company has established an Integrated Risk Management and Compliance Committee based on the Group Risk Management Regulations and Compliance Regulations, complete elimination of such risks is difficult.

Since stores, factories, and distribution centers are widely dispersed, the occurrence of large-scale natural disasters such as earthquakes, floods, or typhoons, or a pandemic, creates a risk of reduced business activity and adverse effects on business results. While the Company has prepared BCP manuals, conducted disaster response training, and established an emergency response headquarters system, there is a coexisting challenge between the obligation to continue operations as part of the

If malicious rumors about the Group arise and spread through media reports or social media posts, regardless of their factual accuracy, this could damage social credibility and adversely affect business results and financial condition. While the Company has a policy of responding promptly when inappropriate conduct such as legal violations occurs, the rapid spread of information on social media can make it difficult to prevent the escalation of damage.