NICHIMO CO., LTD.

The Food Business accounts for approximately 60% of total net sales, but the procurement and sale of major products are affected by global fishing regulations, fluctuations in catch volumes, and marine product market conditions. If unexpected surges in raw material prices or fluctuations in catch volumes make the procurement and sale of major products difficult, this could have a material impact on business performance and financial condition. The Group is advancing initiatives toward stable procurement, but the risk of fluctuations in the external environment remains high.

The major products of the Food Business are procured with the majority of raw materials purchased from overseas, and are therefore affected by fluctuations in exchange rates. Although risk hedging measures such as yen-denominated settlements and forward exchange contracts are implemented, unexpected sharp exchange rate fluctuations could impact business performance and financial condition. In particular, during periods of yen depreciation, there is a risk that rising raw material procurement costs could put pressure on earnings.

The Group positions safety as the most critical issue for the major products of the Food Business, and strives to implement HACCP at Group factories and domestic and overseas partner factories, as well as to establish and practice a thorough quality assurance system. However, if unexpected quality incidents result in large-scale recalls of raw materials or product liability claims, this could impact business performance and financial condition. Secondary effects such as brand damage and deterioration of relationships with business partners are also a concern.

The major products of the Food Business are supplied not only domestically but also from various overseas regions including North America, South America, Russia, and Southeast Asia, with a wide range of supply areas. If unexpected natural disasters occur in these regions, the supply chain could be disrupted, potentially impacting business performance and financial condition. While the geographic diversification of procurement sources contributes to risk mitigation, the risk of simultaneous occurrence in multiple regions cannot be ruled out.

The Group is advancing investment and business development overseas for the purpose of securing a stable supply of major products, but changes in the local economic environment, changes in laws and regulations (including permits and licenses from various national governments), and political or social unrest could impact business performance and financial condition. In particular, business development in emerging and resource-rich countries such as Russia and Southeast Asia is in an environment where country risk is more likely to materialize.

The Group conducts business with many partners after performing sufficient credit investigations, but if a business partner's performance deteriorates, or a sudden M&A, natural disaster, accident, or corporate scandal such as a legal violation occurs, this could impact business performance and financial condition. A sudden deterioration in a business partner's creditworthiness carries the risk of leading to uncollectible accounts receivable or difficulty in continuing the transaction relationship.

The Group conducts its business activities while being affected by domestic and overseas laws and regulations, and unexpected changes in such laws and regulations could impact business performance and financial condition. There is a risk that strengthening of international fishing regulations related to marine resources, revisions to food safety standards, and changes in import/export regulations in various countries could directly constrain business operations.

Long-term loans receivable are exposed to the credit risk of borrowers, and the Group strives to mitigate this risk by maintaining ongoing transaction relationships with borrowers and monitoring their general condition. However, if a borrower's financial condition deteriorates, collection of the loan may become difficult, which could impact business performance and financial condition. Depending on the scale of the loans, there is a concern that the recording of a temporary loss could have a significant impact on financial indicators.

The Group records deferred tax assets for deductible temporary differences and tax loss carryforwards after reasonably estimating future taxable income, but if it is determined that recoverability is not assured due to changes in the business environment or other factors, a write-down of deferred tax assets will be required. Such a write-down would lead to a decrease in net income for the period and an impairment of net assets, potentially impacting business performance and financial condition.

Geopolitical risks, including the situation in Russia and Ukraine, escalating tensions in the Middle East, and the intensifying conflict between the U.S. and China, are increasing in uncertainty, and could adversely affect the production and sales activities of the Group, which operates globally. Specifically, there is a risk that surging crude oil and raw material prices, procurement delays due to supply chain disruption, logistics disruptions, and sharp fluctuations in exchange rates could have a direct impact on business performance. The imposition of economic sanctions by major countries could also affect the continuity of overseas business operations.