Business and Other Risks

The following is a list of major risks that management recognizes as having the potential to significantly impact the financial position, operating results, and cash flows of consolidated companies, among the matters concerning business and accounting conditions described in the annual securities report. In addition, forward-looking statements presented below are based on judgments made by the Group as of the end of the current consolidated fiscal year, unless stated otherwise.

1. Risks Related to the External Business Environment

The Group operates its business not only in Japan but also overseas, and the trade ratio ((import sales + export sales + overseas sales) ÷ consolidated sales × 100) was 67.7%. Also, many of our business sites and partners are located overseas. For that reason, the Group’s business performance and financial position may be affected in the event that our external business environment deteriorates due to political, economic, or social conditions in Japan or other countries, international trade barriers and trade disputes, and free trade agreements and multilateral agreements between nations.

2. Risks Related to the Concentration of Business in China’s Regions and Markets

The Group has positioned China as a key business region from a consumer market and manufacturing base perspective and invested management resources in the country. Based on our consolidated business-centered management, we strive to prevent risks while improving the business environment and unifying business operations. In addition, we have appointed a chief representative to oversee the China region to keep abreast of political and economic conditions and legal and regulatory trends in a timely manner and diversify risks by establishing an alternative global supply chain.
However, business activities may be affected by fluctuations in the Chinese yuan, changes in the financial and tax systems and legislations, and developments in trade friction between the United States and China.

3. Country Risk

The Group conducts transactions, investments, and loans overseas and has developed risk response measures by monitoring developments in the political and economic conditions and laws and regulations of each country, utilizing trade insurance, and returning funds to Japan through dividends from overseas subsidiaries.
However, the Group’s business performance and financial position may be affected in the event of delays or the inability to collect payments due to changes in political, economic, and social conditions, international trade barriers, trade disputes, foreign exchange restrictions, free trade agreements and multilateral agreements between nations, and international affairs represented by regional conflicts.

4. Credit Risk of Business Partners

The Group extends credit to customers in Japan and overseas through a variety of commercial transactions. We assess and monitor the circumstances of each business partner, set specific credit limits in accordance with credit management regulations, obtain collateral and guarantees as necessary, and provide credit insurance coverage, thereby minimizing the risk of bad debt through extensive credit management.
However, trade receivables (\74,272 million) accounted for 55.4% of the Group’s consolidated total assets as of the end of the current fiscal year, and if the need to record losses or allowances were to arise from the risk of unexpected bad debt due to a deterioration in business performance of business partners, the Group’s business performance and financial position may be affected.

5. Risks Related to Exchange Rate and Interest Rate Fluctuations

The Group conducts business activities on a global scale and carries out transactions in various currencies. Accordingly, we mitigate the impact of exchange rate fluctuations by entering into forward exchange contracts and other means.
However, the Group’s business performance and financial position may be affected by unforeseen exchange rate fluctuations.
While the Group procures funds from financial institutions mainly at floating interest rates, an increase in interest rates associated with monetary policy in Japan may increase the interest burden and make it difficult to procure funds, which could affect the Group’s business performance and financial position.

6. Risks Related to Fluctuations in the Price of Raw Materials

The Group handles a vast range of products, each of which have their own market conditions due to factors such as the supply–demand balance. We work to prevent risks by passing them on to selling prices in a timely and appropriate manner.
However, fluctuations in raw material prices affect not only the procurement costs of the products we handle and the manufacturing costs of our products but also selling prices, such as packaging and freight costs, while fluctuations in crude oil prices may affect the Group’s business performance and financial position.

7. Inventory-Related Risks

The Group handles products, such as fiber materials, textiles and textile materials, apparel products, chemicals, and transportation equipment, and works to optimize inventory levels by forecasting demand based on past trends and other factors, making purchases based on orders from business partners, and ensuring customer purchase commitments.
However, a decline in selling prices and a lengthening of the inventory turnover period due to deteriorating market conditions may force us to record a valuation loss, which could affect the Group's business performance and financial position.

8. Risks Related to Tax Litigation

The Group operates its business on a global scale and therefore a number of international transactions take place between Group companies. When determining international transaction prices between Group companies, we pay careful attention to ensure that these prices are appropriate from the perspectives of the transfer pricing taxation regulations and the customs laws of the relevant countries. While we make every effort to pay the appropriate taxes in accordance with the tax systems of each country, differences in views with tax authorities may lead to additional tax burdens, which could affect the Group’s business performance and financial position.

9. Risks Related to Business Investment

The Group makes new investments after thoroughly assessing and considering their relevance to existing businesses, the likelihood of realizing synergies, and their expected return. However, investments may not proceed as initially planned, and the Group decides, on a periodic basis, whether or not to continue with investments by stipulating, in general, various conditions for withdrawing from a business when investment decisions are made.
However, significant delays in operations from the initial plan or a deterioration in the business performance of the investment target may affect the Group’s business performance and financial position.

10. Risks Related to Impairment of Securities

The Group holds shares in or invests in companies it deems necessary for its business. The continuity of these shareholdings is determined based on periodic reviews by the Board of Directors of their significance and effectiveness.
However, a decline in the market value of listed shares or a deterioration in the financial position of the investee company for unlisted shares may force us to record a valuation loss for securities, which could affect the Group’s business performance and financial position.

11. Risks Related to Information System and Information Security

Because the Group conducts operations on a global scale, the use of information systems and the development and operation of information networks are indispensable, and it is becoming increasingly dependent on them. We are strengthening the safety and security of information systems, implementing safeguards against failures, conducting employee training, and evaluating the security vulnerabilities of networks. In addition, the Group has established relevant regulations that it disseminates to directors and employees to ensure the security of information systems and thorough information management.
However, unforeseen system failures, unauthorized external access, or cyberattacks that lead to a shutdown of information systems, the leakage of confidential information, or a discontinuation of operations or loss of trust in the Group may affect the Group’s business performance and financial position.

12. Compliance-Related Risks

The Group operates its business in Japan and other countries in accordance with the laws, regulations, and practices of each country. Moreover, we have established the Legal Compliance Committee to regularly monitor legal violations and have prepared a compliance handbook to clearly state guidelines to be followed by all directors and employees, in addition to laws and regulations, and ensure their awareness and understanding to prevent any serious violations.
However, a serious violation may lead to penalties, damages, lawsuits, loss of trust, or loss of reputation, which could affect the Group’s business performance and financial position.

13. Risks Related to Social and Environmental Issues and Climate Change

The Group is committed to helping resolve human rights, poverty, health, resource waste, climate change, water shortage, and other global issues. With respect to climate change, we assess and disclose its impact on our operations based on the recommendations of the Task Force on Climate-related Financial Disclosures. Moreover, we are reducing the risk of a decline in demand for petrochemical products stemming from stricter environmental regulations and the goal of achieving a zero-carbon society by increasing our handling of environmentally conscious products, such as recycled plastic bottles and biodegradable resins.
However, the emergence of risks such as the intensification of unseasonable weather conditions due to climate change, including the increasing magnitude of natural disasters, rising sea levels due to global warming, and a decline in social reputation due to human rights violations or environmental issues associated with raw material procurement may threaten the continuation of our business activities and affect our business performance and financial position.

14. Risks Related to Human Resource Activities

As a specialized trading company that handles specialized products on a global scale, the Group regards its employees as its most important management resource and strives to secure and develop highly skilled professionals who are essential to advancing its business based on its human resources policy.
However, the tightening of the labor market, the declining birthrate and aging population, and other factors may create difficulties in securing highly skilled personnel, which could affect the Group’s business performance and financial position.
In addition, while we aim to continue developing our business on a global scale and achieve further growth, we may not be able to recruit and secure human resources locally in some regions, which could impede our ability to develop business as initially planned.

15. Risks Related to Natural Disasters, Infectious Diseases, etc.

Natural disasters, such as earthquakes, tsunamis, and typhoons; accidents, such as fires; or outbreaks of infectious diseases, such as COVID-19, in the countries and regions in which the Group operates may cause damage to the Group and its major business partners, which could affect their business activities. To minimize this damage and ensure prompt recovery of business operations, the Group has formulated and operates a business continuity plan by conducting regular drills in preparation for earthquakes and other disasters, implementing an internal safety confirmation system, and establishing a task force that responds to emergencies when necessary in a timely manner.
However, a severe impact due to such disasters may create difficulties in restoring business activities in a timely manner, which could affect the Group’s business performance and financial position.
Although the global outbreak of COVID-19 has passed its peak, the emergence of new variants may still affect the business environment in Japan and overseas as well as our global supply chain. As overseas transactions account for a large portion of the Group’s sales, the resurgence of COVID-19 may affect the Group’s business performance and financial position.