Business Risks
Business risks associated with the execution of the Calbee Group's strategies, businesses and other activities are described below. Risks are major factors that management recognize as having the potential to significantly impact investor decisions. In addition, the risks described below are not exhaustive of all the risks of the Calbee Group; there are other risks that may have an impact on the decisions of investors.
The following details and forward-looking statements are based on our judgment as of the end of the fiscal year ended March 31, 2025.
We have built a compliance and risk management system based on our “Basic policy on the development of an internal control system.” The Ethics and Risk Management Committee examines and decides solutions and manages status. If the possibility of risk arises or grows, we establish an emergency response committee as needed to reduce risk. However, if risk manifests, it may have an impact on our operating results or financial position.
1. Product Safety Risk
Providing safe and reliable products is our most important social responsibility, and we continue to work tirelessly to build relationships of trust with customers. In the unexpected event that an issue occurs with the potential to threaten the health of customers, we give top priority to the safety of customers and respond promptly.
To avoid product risk, Calbee Group reviews the design of standards and audits the raw materials procurement and production processes. In addition, we have built a quality assurance system that involves conducting quality inspections to determine whether products are meeting standards. We also have achieved traceability throughout the supply chain from procurement of raw materials through production, logistics, product distribution, retail stores, and customers. We strive to make improvements throughout the entire supply chain through listening to our customers' voices and analyzing details to reduce reported issues.
However, in the event that quality problems arise and there is doubt about the safety of a product, we may have to recall or discontinue its sale, which could result in loss of customer confidence and have an impact on our operating results and financial position
2. Product Development
Under the Next Calbee & Beyond Vision for 2030, Calbee Group conducts research and development activities to provide both domestic and overseas customers with unique, value-added products that maximize the nutritional content and flavor of natural ingredients for development of products to drive our growth. Meanwhile, there are considerable changes occurring in the business environment owing to diversifying customer tastes, growing health awareness, environmental issues, etc. For our business expansion, we need to respond quickly to these changes in the market and develop high value-added and health-conscious products. We conduct research and development activities in the areas of new product development, existing brand improvements, quality improvement, cost reduction and basic research in accordance with annual plans.
However, if we are unable to respond appropriately to the needs of our customers and business partners and develop products in a timely manner, this could have an impact on our operating results and financial position
3. Raw Materials and Packaging Materials Procurement Risk
(1) Potato Procurement Risk (unseasonable weather and decreasing number of potato farmers)
Our main products are potato-based snacks made primarily from raw potatoes, such as Potato Chips and JagaRico. To ensure a stable supply of domestic potatoes in terms of quality, quantity and price, we have built a procurement system through contract cultivation and decentralization of production areas. In anticipation of a decrease in domestic potato farmers, we also provide farmers with support for cultivation, harvesting and labor saving. Although in principle, it is not permitted to import raw potatoes under the Plant Protection Act in Japan, we have developed factory facilities that are capable of handling imported raw potatoes in preparation for a potential shortage of domestic potatoes.
However, depending on crop conditions, we may not be able to secure sufficient quantities of potatoes, which may result in losing sales opportunities and costs arising from urgent procurement. This could have an impact on our operating results and financial position.
(2) Potato Procurement Risk (potato cyst nematodes)
Potato cyst nematodes are a species of nematode found in soil and are designated as important pests under the Plant Protection Act. It is prohibited to produce seed potatoes in a field where they exist. To prevent the spread of potato cyst nematodes, we need to switch to a more resistant variety of potatoes. We have established a project to reform our potato variety mix, raising the percentage of nematode-resistant varieties to 50% by 2025 and to 100% by 2030 while achieving quality that satisfies customers.
However, since it is only necessary to reduce the procurement volume of non-resistant varieties after the introduction of nematode-resistant varieties is complete, the target year for achieving a 100% nematode-resistant variety ratio has been changed from 2030 to 2035.
Nevertheless, there are some risks. For example, that we are unable to develop new varieties that meet quality conditions for acrylamide content or product color in a timely manner, that the new varieties will not thrive in our production areas, or that potato cyst nematodes expand at a faster rate than anticipated. If these risks materialize and the conversion to nematode-resistant varieties is delayed, we may not be able to procure seed potatoes. This could result in decreases in potato crop yields and lower quality of potato-based products, potentially impacting our operating results and financial position.
(3) Other Raw Materials and Packaging Materials Risk
With regard to imported raw materials from overseas and packaging materials used in Calbee Group products, we are working to stabilize procurement by diversifying and decentralizing suppliers and strengthening appropriate inventories, considering all procurement risks such as natural disasters, geopolitics and other factors.
However, further increases in raw material and packaging material prices beyond expectations or changes in import destinations and import routes could have an impact on our operating results and financial position.
4. Stagnation in Domestic Product Supply Risk
As represented by the ‘2024 Problem’ in the transportation and logistics industry, there are concerns about a shortage of logistics vehicles caused by a decline in the working population due to the lower birthrate and aging population, an increase in the number of deliveries with the expansion of e-commerce, and the long working hours unique to the logistics industry. In order to secure stable logistics and delivery vehicles, Calbee Group is promoting ‘white logistics activities,’ using AI and automation to reduce wait time for drivers, reduce the frequency of deliveries, consolidate delivery destinations, promote pallet transportation, etc. Through this, we aim to be the logistics client of choice for drivers. Additionally, in response to unforeseen fluctuations in raw material yields due to climate change or sudden changes in sales, we are developing a value chain optimization system to enable swift and effective company-wide decision-making.
However, failure to secure transportation vehicles at appropriate costs in the future, unexpected increases in transportation and delivery costs, or delays in implementing measures to optimize the value chain may impact our operating results and financial position.
5. Information Security Risk
In the event that a malicious attacker enters a computer system or network and an information security incident occurs, we have established an incident response system centered on our CSIRT (Computer Security Incident Response Team). To prevent loss, misuse, or falsification of confidential information, we have implemented appropriate security measures for information management including information systems.
However, in the event of cyberterrorism, computer virus infection, loss of information due to unauthorized access or falsification of data, leakage of personal information or confidential company information, power outage, disaster, or defects in software and equipment, the shutdown or temporary disruption of information systems and disruptions to production and logistics operations could have an impact on our operating results, financial position and social credibility.
6. Securing Global Human Resources Risk
As the foundation that supports our business, Calbee Group is strengthening investment in human resources from a medium- to long-term perspective and promoting corporate reform that can achieve sustainable profit growth. In particular, to support the expansion of overseas business, one of the key policies of our Change 2025 growth strategy, we are rapidly introducing Global Talent Management, a new system for recruitment, placement, training and evaluation.
However, if we are unable to hire sufficient global human resources due to changes in the employment situation, or if there are delays in developing global human resources, it could have an impact on our operating results and financial position.
7. Compliance Risk
Calbee Group is subject to a range of legal regulations, including Japan’s Food Sanitation Act, Act Against Unjustifiable Premiums and Misleading Representations, Measurement Act, Unfair Competition Prevention Act, Plant Protection Act, and Consumer Safety Act. In addition, overseas group companies are subject to the laws and regulations of each country in which they operate. Based on Calbee Group's fundamental policy, we have established a Calbee Group Code of Conduct on social values, ethics, laws and social responsibilities. Through educational activities such as rank-specific training in Japan and each country where we operate, we strive to ensure compliance with ethics, social norms, laws and internal rules and to reduce the likelihood of violations of laws and social norms.
However, violations of laws or social norms due to revisions or unexpected enactment may result in sanctions or cancellation of legal authorization, lawsuits or a loss of trust from customers and other stakeholders. Any of these could have an impact on our operating results and financial position.
8. Intellectual Property Rights Risk
Calbee Group has established a specialized department to thoroughly protect and manage various intellectual property rights, and makes every effort not to infringe on rights held by third parties.
However, if our intellectual property rights were improperly used by third parties, or if we were pursued by third parties for infringement of intellectual property rights, it could have an impact on our operating results and financial position.
9. Geopolitical risks of Overseas Businesses
Calbee Group operates in multiple countries and regions. We avoid risk by considering and implementing measures in advance to deal with possible conflict, decoupling, pandemic, and other geopolitical risk in the countries and regions in which we have established operations.
However, in the event of supply difficulty due to these risks having been greater or more prolonged than expected, this could have an impact on our operating results and financial position.
10. Climate Change Risk
Following the adoption of the Paris Agreement at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) and its ratification, efforts to reduce greenhouse gases causing climate change and global warming are advancing on a global scale. Our target is to reduce greenhouse gas emissions by 30% by the fiscal year ending March 31, 2031 compared to their level for the fiscal year ended March 31, 2019. Furthermore, we are aiming for net zero emissions in 2050 (covering Scope 1* and 2**). To achieve these targets, we are working to improve energy conservation and utilize renewable energy.
In February 2020, we endorsed the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) established by the Financial Stability Board and analyzed climate change scenarios. The results of the analysis showed that there was significant risk of direct damage to factories and raw material producing areas due to severe disasters, changes in consumer behavior due to heightened environmental awareness, and a decrease in potato yields due to insufficient hours of sunlight. In response, we will strive to reduce greenhouse gas emissions, develop and adopt new potato varieties, and diversify production areas. In addition, we believe that responding to ethical consumption and product development using sustainable raw materials will create opportunities.
However, depending on the progress of efforts to reduce greenhouse gas emissions, the introduction of a carbon tax could impact our business activities.
Furthermore, consumers' purchasing behavior may change, the quality of potatoes may deteriorate, and damage to manufacturing facilities, suspension of operations and supply chain disruption caused by typhoons and heavy rains may increase. Any of these cases could have an impact on our operating results and financial position.
*Scope1 refers to direct emissions of CO2 from the use of fuel in the company (factories, offices, vehicles, etc.).
**Scope2 refers to indirect emissions of CO2 from the use of electricity, heat, and steam purchased by the company.
11. Natural Disaster or Pandemic Risk
Calbee Group has diversified its production bases and suppliers of raw materials in order to reduce the risk of natural disasters such as large earthquakes, windstorms and floods. We have also promoted an all-hazard BCP (Business Continuity Plan) in response that anticipates scenarios involving the simultaneous occurrence of infectious disease outbreaks and other complex events as well as natural disasters. By strengthening our BCP, we are working to secure a resilient business structure, including the early resumption of supply of priority products. In the fiscal year ended March 31, 2025, all Calbee factories (excluding the new Setouchi Hiroshima factory) acquired certifications as contributors to national resilience as recommended by the Cabinet Secretariat.
However, if supply chain disruptions caused by disasters are prolonged and we are unable to supply products to our business partners, if extended restoration of machinery, equipment or facilities or significant costs are incurred, or if further increases in raw material prices or difficulties in securing raw materials are greater than anticipated, it could have an impact on our operating results and financial position.
12. Relationships with major shareholders
As of March 31, 2025, PepsiCo, Inc. (hereinafter "PepsiCo") held 21.41% (after dilution) of Calbee shares through Frito-Lay Global Investments B.V. (hereinafter "FLGI"), PepsiCo’s 100%-owned subsidiary, and Calbee is an equity-method affiliate of PepsiCo. FLGI, which directly owns the Calbee shares, is a wholly owned PepsiCo subsidiary, and as such PepsiCo effectively makes all decisions regarding the exercise of common share voting rights. PepsiCo is one of the world’s largest food and beverage makers and is listed on the NASDAQ.
In addition, PepsiCo operates globally in the same snack food field as Calbee via group companies, primarily its subsidiary Frito-Lay North America, Inc.
On July 9, 2009, Calbee, Pepsico and FLGI concluded a strategic alliance agreement based on the understanding that combining management capabilities to generate synergies was necessary to deliver sustained growth for both Calbee and PepsiCo. In order to reinforce the partnership with PepsiCo, Calbee allocated new shares to PepsiCo’s wholly owned subsidiary FLGI via a private placement and, at the same time, acquired all the shares of PepsiCo’s subsidiary Japan Frito-Lay Ltd. Under our strategic partnership, PepsiCo has agreed not to operate a savoury snack food business in the Japanese market and therefore does not compete with Calbee in Japan. In addition, because Calbee’s overseas business operations are not restricted in any way, we recognize that this Agreement does not impose any limitations on Calbee’s management decisions or business expansion.
Calbee intends to maintain this strategic partnership and work toward boosting corporate value. However, in the future it may no longer be possible to generate synergies from the partnership in the event that PepsiCo makes changes to its management policy and business strategy. Furthermore, the PepsiCo Group could become a competitor in the Japanese market in the event that the partnership is dissolved. In addition, PepsiCo's shareholding ratio in Calbee may change in the future due to changes in PepsiCo's or Calbee's management policies or business strategies, changes in the business environment, or other factors.