RINGERHUT CO., LTD.

The occurrence of food poisoning, mislabeling under the Food Labeling Act, use of unauthorized additives by suppliers, chain reactions of reputational damage stemming from hygiene management issues at competitors, and social issues such as foot-and-mouth disease or avian influenza may affect business performance. The Group has established a "Quality Assurance Team" and conducts regular hygiene inspections based on a cleanliness manual, and has also built a quality control system that includes receiving written assurances of compliance with relevant laws and regulations from each raw material manufacturer. However, there is a risk that not only issues specific to the Company but also reputational damage affecting the industry as a whole could spread to impact business performance.

The outbreak of epidemics, abnormal weather, and changes in global conditions may make it difficult to secure the necessary quantities of raw materials, or may cause procurement prices to surge. The Group has promoted the domestic sourcing of all vegetables (October 2009), domestic sourcing of wheat for Champon noodles (January 2010), and domestic sourcing of the main ingredients for gyoza (October 2013), and seeks to stabilize procurement prices and volumes through long-term contracts with domestic farmers and others. However, if procurement becomes difficult due to disasters, abnormal weather, epidemics, or other factors, this may affect business operations and performance. In addition, some ingredients are imported from overseas, and import restriction measures, if invoked, could also affect business performance.

The Group's business is concentrated in the restaurant business, a structure that is significantly affected by changes in consumer needs and intensifying competition. Sales are subject to seasonal fluctuations, concentrated during Golden Week, summer vacation, and the year-end and New Year holidays, and if these "peak seasons" coincide with adverse weather such as typhoons, extreme heat, or severe cold, the Company may be unable to achieve its projected sales and profit. Due to the business structure being heavily concentrated in the restaurant industry, there is a high risk that deterioration in the overall industry environment will directly affect business performance.

The Group's food ingredients are processed and manufactured at plants in the Shizuoka, Saga, and Kyoto areas and delivered daily to operating stores. If a large-scale earthquake or other operational disruption event occurs in these areas, production capacity for food ingredients could significantly decline, affecting business performance. Although regular disaster prevention inspections and equipment checks are conducted, there is no guarantee that the impact of disasters, power outages, or other disruptions at production facilities can be completely prevented or mitigated. The concentration of plants in specific regions constitutes a vulnerability in the supply chain.

The Group procures funds for store construction costs and lease deposits primarily through borrowings from financial institutions, and a sharp fluctuation in interest rates may affect business performance. Going forward, the Group has adopted a policy of conservative financial management, including reducing outstanding interest-bearing debt; however, given the business model premised on multi-store expansion, there is a risk that the fund procurement structure will continue to rely on borrowings. In a rising interest rate environment, increased financial costs may put pressure on earnings.

If store profitability significantly declines due to a marked change in the external environment or other factors, the Group may record an impairment loss on fixed assets, which would affect business performance and financial condition. In addition, closing unprofitable stores may result in losses on disposal of fixed assets, penalties for lease contracts, and subleasing costs, and may require recording a provision for store closure losses. For the Group, which operates a multi-store business, deteriorating store profitability due to changes in location environment or intensifying competition is a persistent risk factor.

The Group operates under a variety of legal regulations, including the Food Sanitation Act, the Septic Tank Act, the Fire Service Act, the Food Recycling Act, and the Act on Improvement, etc. of Employment Management for Part-Time and Fixed-term Workers, and in its franchise operations, is also subject to regulations under the Act on the Promotion of Small and Medium Retail Business and the Antimonopoly Act. If legal regulations are changed or strengthened, such as the expansion of social insurance coverage for part-time workers or the enforcement of the Act on Improvement, etc. of Employment Management for Part-Time and Fixed-term Workers, new costs may arise, affecting business performance. As the restaurant industry is labor-intensive, changes in employment-related legislation could have a particularly significant impact in terms of costs.

While the Group is increasing recruitment of full-time employees, part-timers, and part-time workers and enhancing the part-time store manager system in line with business expansion such as new store openings, there is a risk that the acquisition and development of human resources may not proceed as planned due to a tight employment environment and a declining young population. As the restaurant industry is labor-intensive, a shortage of human resources poses a risk directly linked to a decline in store operation quality and delays in store opening plans. Although the Group is increasing hiring numbers and improving its systems, responding to structural changes in the labor market remains a challenge.

If the number of franchise partner companies declines or their business performance deteriorates, this may lead to a decrease in royalty income and failure to achieve chain expansion plans. In addition, if franchise partner companies fail to provide services in accordance with the Group's hygiene management guidance, this poses a risk of adverse effects on brand image and business performance. The Group is also promoting franchise expansion overseas (Thailand, the United States, and other regions), but there is no guarantee that this will proceed as the Group expects, and it also entails country risks specific to overseas operations.

Inappropriate posts or images published on the internet, regardless of the truth of their content, may affect the Group's business, performance, brand image, and social credibility. Furthermore, even reputational damage directed at competitors could spread to affect the Group's business performance if it causes an overall decline in the evaluation of the restaurant market. In today's environment, where the spread of social media has accelerated the speed of information dissemination, the scope and speed of the impact of reputational damage have expanded significantly compared to the past.