Business Risks

The following is a list of conditions pertaining to our business and finance that may be of special interest to investor decisions. All discussions regarding the future are as of the date of submission of our Annual Securities Report (June 30, 2022).
Our Risk Management Committee reports directly to the president, exhaustively considering the risks that should be prioritized, and preemptively contacts each department with advice on risk mitigation.

Nagatanien Group's main buyer is Mitsubishi Corporation. Focusing on our business with trading companies that have good credit is how we streamline credit management and minimize risk. Nevertheless, it is true that Mitsubishi's bankruptcy would make recovery of the accounts receivable difficult, damaging our financial health. This is why we routinely check their credit rating status.

We are conscious of the possibility of unforeseen raw material contamination and product defects that may lead to a mass recall or substantial product liability. In order to protect its business performance and financial health, Nagatanien puts product safety first. Through ISO and FSSC certifications, food management with HACCP and food defense, and self-inspection and traceability structures, we hope to build a secure quality assurance system.

Nagatanien Group sources a portion of its raw materials from overseas. In cases where supply halts due to political instability or international disputes, or cases where bad weather or exchange rates drastically increase prices, production may be temporarily suspended. We are diversifying our suppliers so that every material can come from multiple sources.

Although we entrust our logistics operations to a business with a stable foundation, costs continue to rise in the present-day logistics industry due to labor shortages and stricter compliance. Future trends could damage our performance and financial health. Nagatanien strengthens cooperation with its contractor to minimize work in all operations. This is achieved through palletized transportation of goods for shorter driver hours, improved packaging for transport efficiency, and localized production to cut our truck count.

Nagatanien holds securities of its major business partners in order to maintain long-term relationships. Of these securities, those that have market value are valued accordingly and are susceptible to fluctuations from the economic environment and corporate earnings. In order to minimize the possibility of damage to our business and financial health, we periodically review the appropriateness of such holdings and reduce them if criteria are not met.

Nagatanien Group's production plants are dispersed from east to west as a precaution against natural disasters. Nevertheless, shipments may be temporarily delayed depending on the scale and impact of a disaster. With this in mind, our post-Great East Japan Earthquake policy has been to implement business contingency plans (BCPs) in both logistics and production, minimizing delays and accelerating recovery.

Our Muginoho Holdings franchise system operates a chain of establishments under brand names that Nagatanien owns. Therefore, if any incidents at one of those stores affects the brand image of the entire chain, the Group may face issues in performance and finance.
In addition, if the Group of franchise owners cause any trouble with us, termination of franchise contracts, occurrence of lawsuits, and other issues may hurt the Group's performance and finances. This is why we implement routine visits to franchise stores that manage operations and educate workers with legal awareness. We also provide potential franchise owners with thorough documentation of the traits and risks of the system before signing them on.

Our group has local subsidiaries overseas (mainly in the U.S., U.K., and China) that engage in business activities such as the manufacture and sale of food products, operation of directly managed stores, and franchising. Such overseas operations are subject to Group performance/finance damage from unforeseen changes in law, political condition, and exchange rate. This is why we respond appropriately to changes in business conditions on a global scale by strengthening communication with local employees and gathering up-to-date information about local regulations to ensure they are appropriately followed. We deal with the risks of exchange rate fluctuations through forward exchange contracts. The raw materials our overseas operations use are strictly within the amount they will need for production, while also being sourced from multiple suppliers as a failsafe for price fluctuations.

Nagatanien Group accounts for the goodwill from its numerous business acquisitions on its consolidated balance sheet and usually amortizes it during the period of the goodwill's emergence. However, if the expected results are not achieved due to changes in the business environment or other factors, an impairment loss will be recorded for the goodwill, which may have a negative impact on our performance and finances. This is why our group strives to constantly improve the performance of businesses subject to goodwill through management efficiency, development of new forms of business, and creation of inter-group synergies.

Our group uses computer systems to manage operations such as production, sales, logistics, and administration. Such systems are protected from computer viruses and the information is securely managed in data centers. However, natural disasters, system failures, cyberattacks, and computer virus infections may lead to the loss or leaking of information, such that our Group will suffer damage to performance and finances. This is why we hope to reduce such risks through new crisis management regulations and fundamental IT control regulations, in addition to gathering information security knowledge, implementing specialized security software/equipment, and providing employee education and training.

Natural disasters such as large-scale floods and earthquakes, in addition to the seasonal flu and severe diseases (e.g. COVID-19) may lead to the disruption of product supply. The destruction of production facilities and illness of employees may thus have a negative impact on our performance and finance. That is why Nagatanien is ready to set up a disaster response headquarters in response to the severity of the damage in accordance with its crisis management regulations. We are prepared to follow our BCP and fulfill our primary role as food suppliers by preserving our production and logistics. During the COVID-19 pandemic, we followed government regulations and increased telecommuting and online meetings. We will continue to monitor the situation and adjust accordingly.