SHOEI FOODS CORPORATION

There is a risk of unforeseen quality issues or unexpected accidents in manufacturing and processing occurring in procurement from domestic and overseas food manufacturers and producers, as well as at production subsidiaries in Japan, the United States, and China. If a large-scale product recall or substantial product liability claims occur, this could materially affect the financial position and operating results. The Group strives to enhance quality control and ensure food safety through regular meetings attended by domestic and overseas plants, centered on the Quality Assurance Department.

The Group maintains a certain volume of inventory of various food raw materials and products (particularly imported goods), and there is a risk of inventory disposal arising from discrepancies between sales forecasts and actual results. Significant price fluctuations may also affect the financial position and operating results. The Group strives to prevent excess inventory and expiration of products through the assignment of item-specific staff and close information exchange with sales personnel.

There is a risk that stable quality and quantity of food raw materials and products cannot be secured due to poor harvests caused by natural disasters or climate change. Fluctuations in overseas agricultural commodity markets and foreign exchange rates due to supply and demand changes can significantly affect procurement costs and production costs, potentially worsening the financial position and operating results. The Group assigns item-specific procurement staff and strives for stable procurement through close information exchange with suppliers and confirmation of crop conditions.

If events exceeding assumptions, such as major earthquakes, natural disasters, or large-scale fires, or a pandemic of infectious disease occur, there is a risk that damage to or loss of owned facilities and plants could disrupt order-receiving, shipping, and production activities. This could impede product supply and affect the financial position and operating results. The Group strives to mitigate this risk through periodic review of its Business Continuity Plan (BCP) and the use of insurance.

In the procurement of raw materials and products from overseas and the development of overseas production bases and sales operations, there is a risk of unforeseen events such as war, terrorism, political and social change, or the establishment, revision, or abolition of unfavorable tax systems and regulations. Deficiencies in governance over overseas group companies could also affect the financial position and operating results. The Group has established specialized departments for overseas procurement and overseas group company management to strive for risk management.

Credit risk exists based on trade receivables owed by business partners, and if problems arise in collecting receivables due to unforeseen circumstances such as a partner's bankruptcy, this could affect the financial position and operating results. The Group strives to avoid credit risk by setting credit limits for each business partner based on analysis of credit information and conducting reviews with approval authority commensurate with the limit amount.

The Group is subject to laws and regulations such as Japan's Basic Act on Food Safety and Food Sanitation Act, as well as the legal regulations of each country in which it operates, and there is a risk that business activities could be restricted in the event of future regulatory changes or findings of legal violations. This could affect the financial position and operating results. The Group strives to comply with the legal regulations of each country and takes appropriate action.

As reliance on electronic communication methods increases, from order processing and accounting to communication with business partners and internal information exchange, there is a risk that corporate activities could be disrupted in the event of information leakage, data loss, or virus attacks. This could affect the financial position and operating results, and the Group has established a specialized information systems department to strive to reduce this risk.

There is a risk of delivery delays due to a shortage of delivery drivers stemming from labor shortages in the logistics industry, and a significant rise in logistics costs due to soaring labor and fuel costs could affect operating results. The Group is addressing this through initiatives such as a modal shift (from truck transport to rail freight transport, etc.) and unloading imported cargo at ports closer to consumption areas.

Factors of instability in maritime transport are increasing globally, and there is a risk that delays in product procurement or increases in logistics costs could occur if disruptions to imports and exports arise. This could affect the financial position and operating results, and the Group is working to mitigate this risk through initiatives such as optimizing the ports at which imported cargo is unloaded.