Business Risks, etc.

【Last updated date: Aug. 10, 2011 with wording modification】

 Risk factors regarding the business of our corporate group and matters that may have important influence on investors’ judgment include the following. The forward-looking statements contained herein are based on judgment by our corporate group as of March 31, 2011.

1. Management environment

Our corporate group, which handles various kinds of food, has been confronted with intensifying competition with not only the trade but also companies in different industries. Amid such circumstances, a multitude of issues, including unseasonable weather such as cool summer and warm winter, Bovine Spongiform Encephalopathy (BSE) and avian influenza, and problems that would shake safety and confidence in food such as pesticide residues, may result in a decline in sales, which may consequently bring about adverse effects on our business results.
In addition, as the majority of customers of our corporate group are located in Japan, our business results may be affected undesirably by multifarious factors, including an economic downturn in Japan and the shrinking market scale, a slump in sales in our major customers, declining demand due to changes in merchandise policies, and a decrease in manufacturing capacity due to natural disaster such as earthquakes and man-made disaster such as fires.

2. Fluctuation in purchase prices of ingredients

The main ingredients that our corporate group uses include cooking oil (such as soybean oil and rapeseed oil), eggs, and vegetables, whose purchase prices are highly susceptible to fluctuation of commodity market price in and outside of Japan and a foreign exchange rate. As a hedge against the risk of market price fluctuation, we have purchased ingredients from diverse producing centers and concluded year-round price contracts, including overseas procurement; however, there are still possibilities of a crippling influence of market price fluctuation on our business results.
Furthermore, in the event that the crude oil price rises, logistics cost, the price of packaging materials, and other related costs may increase. If we cannot increase selling prices in response to these, it may affect our business results.

3. Outsourcing of logistics services

Our corporate group has fully outsourced logistics services to outside enterprises specializing in logistics. We have secured multiple subcontractors according to conditions. In the event that any of their respective transaction conditions are changed or any trouble occurs due to accidents or disaster, our business results and financial condition may be undesirably affected.

4. Financial condition

Our corporate group has engaged in improving our financial condition by reducing interest-bearing debt and taking other measures. We will increase the proportion of long-term fixed-rate debt in order to hedge the interest fluctuation risk, while continuing efforts to improve our financial condition. In case of a considerable change in the monetary conditions, however, crippling effect may be brought about in our business results and financial condition.

5. Labor

Our corporate group has entrusted partner employees and part-time workers, as well as full-time employees, with order receiving tasks and manufacturing operations, and therefore, in the event that laws concerning employment of workers and other relevant matters are amended, related expenses may fluctuate and our business results may be adversely affected.

6. Quality control and legal regulations

The products and services that our corporate group offers are subject to Food Sanitation Act, the Law Concerning Standardization, etc. of Agricultural and Forestry Products (JAS law), Health Promotion Act, and other related laws, and we have put forth efforts to enhance a system for ensuring compliance with related laws and regulations regarding manufacturing, sales, and labeling.
In addition, amid a growing interest of consumers in food safety, our corporate group has established a well-prepared system of quality control by obtaining the certification of “ISO9001” (the quality management system), introducing a traceability system, and other similar means. If any quality issues arise, however, negative effect on our business results may not be avoidable.

7. Fixed asset impairment

Our corporate group possesses a variety of assets, including land, buildings, and machinery and equipment. Before acquiring new assets, related departments cooperate with each other in order to thoroughly examine and discuss return on investment and collectability, and approval is granted in accordance with the official regulations of administrative authority. In addition, we continuously check the effectiveness, endeavoring to maintain and efficiently use our fixed assets.
However, in the event that it can no longer be expected, due to decreasing fair value and declining profitability following rapid changes in the external environment, that the money invested will be collected, we may book impairment loss, which may bring about adverse effect in our business results and financial condition.

8. Information system

In order to prevent loss, falsification, or other unauthorized acts with regard to important information on manufacturing, sales, logistics, accounting, and other related matters managed by means of a backbone system, our corporate group has taken security measures, such as the establishment of a thorough information management structure and maintenance carried out against system trouble.
In the event that, however, the system fails due to unforeseen circumstances, including natural disaster such as earthquakes, our business results and financial condition may be undesirably affected.