(ⅰ)Food Safety Issues
Consumer demand for quality has increased in the food industry. In response, the Company is taking steps to strengthen its quality assurance system, including constructing a traceability mechanism headed by the Quality Assurance Management Division, which is dedicated exclusively to product quality assurance, as well as holding Group quality assurance meetings, with the participation of people from outside the Group who can deliver useful insights. Nevertheless, should an incident that exceeds the scope of the Group’s initiatives as described above take place – for instance, a quality issue that encompasses the entire community – and the image of the products of the Group is harmed, or should other events in which the image of the products of the Group is harmed by rumors take place, even if the Group’s products are not directly related to the relevant incidents, the Group’s performance and financial standing could be affected.
(ⅱ)Weather and Natural Disasters and Widespread Outbreak of Serious Infectious Diseases
Weather-related factors, such as relatively cold summers, heat waves and relatively mild winters, the occurrence of a large-scale natural disaster, or the widespread outbreak of serious infectious disease have the potential to become risks for the Group’s businesses and could affect the Group’s performance and financial standing.
The Group creates a task force immediately after a large-scale disaster or widespread outbreak of serious infectious disease and establishes a Group-wide system to respond to the disaster or disease. Considering relief supplies and product supply the primary mission of a food corporation, the Group creates a production and supply system to deal with the disaster or disease. The Group also revises its business continuity plan every year in order to resume business without delay should the Group suffer damage as a result of disaster.
(ⅲ)Procurement of Raw Materials and Price Fluctuations
The main ingredients of the Group’s products are agricultural products such as wheat and spices, as well as petroleum products used in packaging, among others. There is a risk of stable procurement of these ingredients becoming difficult in the event of crop failure associated with extraordinary weather in their places of origin, because of the occurrence of conflicts and incidents, or unexpected changes in laws or regulations. There is also a risk of manufacturing costs rising because of soaring prices associated with supply and demand relationships or price fluctuations in markets. Those risks could influence the Group’s performance and financial standing.
The Group procures part of its ingredients from overseas, and their prices could be affected by exchange rate fluctuations. Medium- to long-term exchange rate fluctuations are at risk of affecting the Group’s performance and financial standing.
(ⅳ)Risks in Overseas Businesses
The Group is engaged in various food-related businesses overseas, including manufacturing and selling tofu products and curry products and operating restaurant chains in countries such as the United States, China, Taiwan, South Korea, Thailand and Vietnam. Economic slowdowns, political issues, and situations jeopardizing food safety in these countries have the potential to become risks that influence the Group’s performance and financial standing.
(ⅴ)Risks in the Restaurant Business
In the Restaurant Business, competition among restaurants and competition with players from other industries such as convenience stores and supermarkets is becoming increasingly fierce whilst the market stays the same size. If the Group fails to provide menus that meet the needs of customers or high added value services, its net sales may fall and this may influence the Group’s performance and financial standing.
(ⅵ)Changes in the Value of Held Assets
The Group holds a range of tangible and intangible fixed assets, including commercial facilities, real estate, and goodwill acquired through corporate acquisitions, etc. Should the market value of these assets fall or should these assets no longer generate the cash flows initially expected and there is no longer any prospect of recovering the amount invested in the assets due to decline in their profitability, impairment accounting could be necessary. Impairment accounting could influence the Group’s performance and financial standing.
(ⅶ)Effects of Laws and Regulations
The Group is subject to a number of laws and regulations, including the Food Sanitation Act, the Product Liability Act, the Act against Unjustifiable Premiums and Misleading Representations, and laws and regulations concerning the environment and recycling, and local laws and regulations overseas. Each division in the Group collaborates with the legal division to take all possible measures to comply with relevant laws and regulations. However, our business activities could be restricted should regulations be tightened and new regulations imposed, and this could influence the Group’s performance and financial standing.
(ⅷ)Risks in Data and System Management
The Group manages data in computerized form about development, production, logistics, sales and other aspects, and the personal information of many customers associated with sales promotion campaigns and mail-order marketing. The Group prepares for unlikely events such as system failures by taking all possible maintenance and security measures, while operating a comprehensive data management system. Nonetheless, systems could become inoperative, or sensitive information could be lost if software or equipment were to be damaged in a disaster. The potential for system failures, unauthorized disclosure, or falsification of data does exist, for instance from unauthorized access involving new technologies and the infection of computers with unknown viruses. In those cases, the Group’s performance, financial standing, and social trust could be influenced.