HURXLEY CORPORATION

If quality issues such as food poisoning or foreign object contamination, or doubts about the safety of ingredients used, arise, business suspension and reputational damage could have a material impact on business performance and result in loss of social trust. In the Store Asset & Solutions Business, there is also a risk of accidents involving loss of life due to fire or similar incidents. As countermeasures, the Group has obtained FSSC22000 certification, established a quality control department, and thoroughly ensures compliance with the Fire Service Act and other relevant laws and regulations.

If the operation of the basic business portfolio policy aimed at becoming a "group of self-transforming companies" becomes a mere formality, capital profitability may stagnate, potentially impairing corporate value. A framework for approval applications for large-scale investment and financing projects to the holding company, Huckleberry, has already been established; however, strengthening the operation of reviewing and approving, at strategy meetings, the consistency with profitability exceeding the cost of capital remains a challenge. The Group also intends to work on improving the effectiveness of the financial second-line function handled by the accounting and finance division.

Inaba Peanut Co., Ltd. faces significant price fluctuation risk, including exchange rate factors, for raw materials that depend on imports. In addition, price surges due to poor rice and vegetable harvests or inflation, as well as risks of disruption to chicken imports, may affect business performance and financial condition. The Group plans to address this by building a group-wide raw material processing and supply system through close coordination with the supply chain, as well as by switching menus from high-priced ingredients to more cost-effective ones.

Although the Group has established and is implementing human resource development policies and internal environment improvement policies, there is a risk that it may be unable to secure the necessary talent, or that engagement and labor productivity may fall significantly short of strategic targets, potentially affecting business performance. Since August 2023, the Group has been conducting employee engagement surveys, and intends to gradually expand the scope of these surveys while utilizing the results for group-wide initiatives to improve engagement.

There is a risk that the performance of companies that join the group following M&A execution may fall significantly short of business plans, or that goodwill may become impaired, potentially affecting business performance and financial condition. For large-scale investment and financing projects, the Group intends to strengthen the review and approval process at strategy meetings, and in the post-investment execution phase, to address this through business execution by the Business Development Office and by improving the effectiveness of the financial second-line function of the Accounting and Finance Department.

In the value-up development process for commercial real estate, there are risks of delivery delays and rising construction unit costs due to labor shortages and difficulties in procuring materials. In the sales process, deteriorating market conditions, including worsening financial conditions, may lead to declines in sales prices and valuation losses on inventory. The Group intends to control price fluctuation risk by enhancing capital profitability through the expansion of diverse sales channels and improved inventory turnover, while managing inventory positions within an appropriate range.

In the Store Asset & Solutions Business, the Group aims to exceed 1,300 operating stores by the end of March 2027; however, if it becomes difficult to secure and finalize contracts with tenant operators due to economic conditions or other factors, decreased revenue from vacancies in leased real estate and increased burden of vacant rent on leased store properties may affect business performance. Leveraging its store leasing capabilities, which combine multifaceted solutions such as personnel placement, store properties, financial support for store openings, and information provision, the Group intends to curb vacancies and vacant rent through the systematic development and cultivation of lead customers and enhanced proposals to existing business partners.

Delays in adapting to technological innovation and regulatory reform may result in falling behind competitors' products and services, causing existing business models to become obsolete and lose market share, which could affect business performance. The Group intends to secure and develop diverse talent who view technological innovation and regulatory reform as opportunities, and to promote a management strategy with the flexibility and agility to adapt to market changes.

If incidents involving disregard for human rights become publicly known, this could affect business performance through boycotts and other reactions, as well as result in loss of social trust. As companies with different cultures join the group through M&A and other means, a multifaceted approach is required. The Group intends to foster a culture that values human rights through information sharing, development, and on-the-job training from management down to frontline staff, based on ESG-grounded "people-thriving" management, and to pay attention to fostering awareness among newly joined group companies during PMI.