ANRAKUTEI Co.,Ltd.

If a social incident related to food safety occurs, such as the BSE issue, distribution of cesium-contaminated beef, or food poisoning incidents at other companies, the Group may suffer reputational damage, which could adversely affect its business performance and financial condition. The Group has established a system for procuring safe ingredients traceable back to the production area and for processing and cooking, centered on Group factories, and is working on food traceability and disclosure of ingredient inspection information; however, risks arising from external factors cannot be completely eliminated.

If manufacturing and logistics functions centered on Group factories are halted due to a large-scale disaster, this could disrupt sales activities at stores. In addition, if adverse weather in key raw material procurement regions causes extreme spikes in agricultural product prices, stable procurement of raw materials could become difficult, which could adversely affect business performance and financial condition. Although the Group has secured advantages in cost and safety management through its own manufacturing and logistics system, risks from external factors remain.

The Group considers securing and developing human resources to be a top priority, but if it is unable to sufficiently secure and develop personnel committed to a customer-first philosophy, this could adversely affect future growth, business performance, and financial condition. Against a backdrop of intensifying competition for talent in the restaurant industry, risks exist at each stage of recruitment, retention, and development.

In the multi-store rollout of roadside-centered yakiniku restaurants, the majority of capital investment funds for new store openings is procured through borrowings, resulting in a high level of dependence on borrowings relative to total assets. Since the proportion of fixed-rate borrowings is small, future fluctuations in interest rates and financial market conditions could adversely affect business performance and financial condition through increased interest burden and financing difficulties. The management plan calls for reducing total assets and borrowings, and structural reforms such as promoting scrap-and-build and selling low-efficiency assets are being pursued.

Some borrowings are subject to financial covenants, and if a breach of specific covenants occurs and repayment is demanded, the Group could lose the benefit of the grace period on all contractual debts, potentially requiring lump-sum repayment of principal and interest on borrowings. Should this occur, it could have a material adverse effect on the Group's business performance and financial condition.

The Group applies impairment accounting, and if additional impairment losses become necessary due to a decline in the substantial value of held assets or a decline in profitability, this could adversely affect business performance and financial condition. Intensifying competition in the restaurant industry and declining store profitability could be factors that heighten impairment risk.

There are numerous laws, regulations, and guidance related to food safety, including the Food Sanitation Act, and in recent years, in addition to regulations on designated ingredients and work procedures, there has been a growing trend toward stricter regulation regarding the provision of information to customers, such as allergen information. If a food poisoning incident were to occur at a store, this could result in a business suspension or cessation order for the affected store, avoidance of use of other stores, and increased costs for regulatory compliance, which could adversely affect business performance and financial condition. The Group has implemented measures such as ingredient and bacterial testing by its own quality inspection organization and wipe testing of in-store facilities.

A large number of part-time and temporary employees work at stores and factories, and if further changes occur to systems such as social insurance and working conditions for part-time workers, this could increase personnel and other costs, adversely affecting business performance. The restaurant industry has a high degree of dependence on part-time workers, making it structurally susceptible to the effects of system changes.

If the government invokes emergency import restriction measures (safeguards) on fresh or chilled beef and pork, or takes measures to halt imports, beef and pork prices could surge, significantly increasing raw material costs for the Group, whose core business is yakiniku restaurants. A surge in the prices of key ingredients would directly affect profitability and could adversely affect business performance.

The Group holds a large amount of personal information regarding customers at each store, and if information leakage occurs due to a data breach or criminal activity, this could damage social trust and corporate image, adversely affecting business performance and financial condition. The Group works to manage information through the establishment and thorough enforcement of internal rules, but risks such as unauthorized access from outside cannot be completely eliminated.