UMENOHANA GROUP CO., LTD.

There is a risk that natural disasters, abnormal weather causing reduced harvests of crops and marine products, and exchange rate fluctuations could make it difficult to stably procure ingredients, including rice, which is a key raw material. In particular, soaring rice prices are recognized as a factor with a significant impact on the cost structure, and rising prices of other ingredients due to changes in the global situation may also put pressure on business performance. As countermeasures, the Group is implementing diversified procurement from multiple suppliers and production areas, recipe changes, review of menu composition to raise average customer spending, and price revisions.

As of the end of FY2025 (ended April 2025), the balance of interest-bearing debt was ¥16,666 million, representing a high ratio of 72.6% to total assets. If interest rates rise further going forward, an increase in interest expenses could adversely affect the financial condition and business performance. As a countermeasure, the Group is working to maintain financial soundness by appropriately controlling the total amount of capital expenditure in line with the state of operating cash flow.

The Group manages cash flow primarily on a per-store basis, and if the number of stores for which investment recovery is not expected due to declining profitability increases, a significant impairment loss on fixed assets may be recorded, affecting business performance. Given the nature of the Restaurant and Takeout businesses, intensifying competition and changes in the location environment can be major causes of declining profitability. The Group continuously conducts impairment assessments on a store-by-store basis.

Demand in the Restaurant Business and Takeout Business tends to concentrate around seasonal events such as year-end and New Year parties, farewell and welcome parties, New Year's dish (osechi) sales, and Setsubun, causing net sales and operating income to be weighted toward the second half of the fiscal year. In FY2025 (ended April 2025), quarterly operating income was ¥46 million in Q1, ¥(179) million in Q2, ¥637 million in Q3, and ¥46 million in Q4, showing an extremely high dependence on Q3. If a prolonged slump in demand occurs in the first half, there is a risk of significant impact on full-year business performance.

If a serious incident such as food poisoning or other health hazard occurs, it could significantly affect business performance through food disposal, revocation of business licenses, business suspension, and loss of credibility. For the Group, whose core businesses are the Restaurant Business and Takeout Business, food safety is a risk fundamental to business continuity. As a countermeasure, the Group has established a Food Safety Committee to share quality control information among Group companies and conducts regular hygiene inspections through its Internal Audit Office.

Stable securing of personnel, including part-time workers, and human resource development are essential for smooth business operations, and if recruitment does not proceed as planned, business performance may be affected. In addition, delays in developing store managers and management executives could lead to a decline in organizational management capability, potentially adversely affecting overall business operations. The Group is focusing on the continuous recruitment of new graduates and mid-career employees while advancing the development of its human resource development framework.

In response to Japan's declining population and low birthrate coupled with an aging population, the Group operates directly managed stores through overseas subsidiaries in Southeast Asian countries such as Thailand and Vietnam, where unpredictable risks exist, including war, political instability, changes in economic conditions, changes in laws and regulations, natural disasters, and local business customs. If these risks materialize, they could disrupt the operation of overseas businesses and affect the performance of the Group as a whole. Although the Group has established a business operation framework through local subsidiaries, complete elimination of these risks is difficult.

In its store development, the Group enters into fixed-term building lease agreements and other agreements with lessors and provides security deposits, guarantee deposits, and construction cooperation funds. There is a risk that these funds may become unrecoverable if a lessor becomes insolvent, among other events. In addition, unplanned store closures due to non-renewal of lease terms or rent increases upon renewal, as well as the recalculation of asset retirement obligations due to rising costs of restoration work, may also affect business performance. The Store Development Department continuously gathers property information from developers and real estate companies to work toward avoiding deteriorating conditions.

Large-scale natural disasters such as earthquakes, typhoons, and torrential rains associated with climate change, as well as outbreaks of infectious diseases and transportation disruptions, could cause severe damage to facilities related to manufacturing, logistics, sales, and information management. If such events occur, they could result in the suspension of manufacturing activities, store closures, and delays in product supply, thereby affecting business performance. This is recognized as a risk requiring the establishment of a response framework from the perspective of business continuity planning (BCP).

The establishment, amendment, or abolition of various laws and regulations, including the Food Sanitation Act, the Food Labeling Act, environmental recycling-related laws, and corporate tax laws, may affect business performance. In addition, if employees commit legal violations, violations of internal regulations, or socially inappropriate conduct, there is a risk of damage to social credibility and adverse effects on business results and financial condition. The Group has established a Compliance Management Committee to centrally manage various risks within the Group and is continuously working to instill and establish compliance awareness.