ROYAL HOLDINGS Co., Ltd.

Amid an expected decline in the labor population, if the Group is unable to secure human resources, including part-time and foreign workers, there is a possibility that the quality of products and services may decline, given that the labor-intensive business model accounts for the majority of the Group's operations. In addition, there is a risk that labor costs will increase due to minimum wage hikes and changes to the social insurance system, and if responses such as improving productivity through digital technology utilization and enhancing the working environment are insufficient, this may affect operating results.

If quality issues such as food poisoning or foreign object contamination occur at restaurant operations, food manufacturing, or food sales sites, this could have a material impact on operating results due to business suspension or reputational damage. Although the Group has strengthened its quality assurance system through a cross-group independent department and conducts regular inspections and testing, if doubts arise regarding safety, such as the contamination of ingredients used with substances that could cause health hazards, this may also affect operating results, including through reputational damage.

If the supply of ingredients or products is disrupted in the supply chain, which consists of the Group's own food plants and numerous business partners, due to natural disasters, fires, geopolitical risks, or a shortage of logistics drivers, this could result in business suspension or operational restrictions. In addition, there is a risk that procurement costs will fluctuate significantly due to weather conditions, exchange rates, the progress of yen depreciation, and a shortage of workers in the primary industries, and in particular, the risk of soaring ingredient costs due to supply chain disruption or rapid yen depreciation is increasing with respect to the procurement of key ingredients from specific overseas regions. Although various measures are being implemented, it is difficult to avoid all effects of price increases, which may affect operating results.

Global-scale structural changes such as climate change, resource depletion, and world population growth pose mid- to long-term business continuity risks, and boycotts or damage to brand image resulting from human rights issues or environmental destruction in the supply chain may directly affect operating results and recruitment activities. The impact of natural disasters such as extreme heat and heavy rain caused by global warming on crop growth and raw material procurement costs is also expanding year by year, and while the Group is working to identify risks and opportunities using the TCFD framework and set CO₂ reduction targets, insufficient responses could lead to reputational damage or consumer backlash.

Country risks such as political instability, changes in laws and regulations, exchange rate fluctuations, and terrorism in the countries where overseas subsidiaries and affiliates operate may make it difficult to execute planned business expansion. In addition, there is a risk that income such as royalties will decline due to deteriorating performance or a decrease in the number of local franchisees, and since the Group positions overseas business as one of its growth drivers, if expansion does not proceed as planned, this may affect overall business growth.

Since personal consumption is heavily influenced by external factors such as income tax, consumption tax, social insurance burdens, and price trends, delays in responding to changes in the social environment or failure to make appropriate price revisions may affect operating results. Competition across business formats and industries is intensifying due to structural changes in society, such as the normalization of ready-to-eat meals and delivery services and the declining birthrate and increasing participation of women in the workforce, and as the impact of inbound demand expands further, a decrease in the number of visitors to Japan due to a resurgence of infectious disease, changes in international circumstances, or exchange rate trends may also affect earnings.

If confidential information, customer information, or specific personal information is leaked or tampered with due to information leaks via SNS or cyberattacks, this may result in loss of credibility or liability for damages. The Group is highly dependent on information and communication systems for supply chain management, store ordering, and payment processing, and if a system failure occurs due to a malicious attack, efficient operations may become difficult, which could affect operating results. In addition, if reputational damage occurs across the restaurant industry as a whole, this may also affect the Group's brand image and social credibility.

Major brands such as Royal Host, Tenya, and Richmond Hotel have enjoyed customer support over many years, and if intellectual property rights are insufficiently protected, or if misuse or infringement by third parties occurs, brand value may be damaged. As the Group pursues a high-value-added strategy, if it becomes unable to provide value commensurate with rising prices, this may also affect brand image and social credibility, and there is also a recognized risk that increased exposure resulting from strengthened group-wide branding could amplify the impact on individual brands.

The Group is actively considering M&A and capital alliances both domestically and overseas for the purpose of business expansion and portfolio enhancement toward sustainable growth, and while due diligence is conducted by external experts, if the integration process for management systems, HR systems, IT systems, and the like does not proceed as planned, or if the market environment changes significantly, the acquired company's performance may fall short of the business plan, potentially resulting in impairment losses on goodwill or intangible assets. This may affect the Group's operating results and financial position.

The Group operates its business within a framework of diverse legal regulations both in Japan and overseas, including the Food Sanitation Act, and if there are deficiencies in responding to new legislation or legal amendments, or if legal violations occur, this may result in loss of credibility or affect operating results. Legal violations at brands operated as a franchisee, as well as violations resulting from insufficient guidance to franchisees of brands owned by the Group, pose similar risks, and increased costs of responding to regulatory tightening, including regulations related to food labeling, may also affect operating results.