NIPPN CORPORATION

Ongoing reviews of CPTPP, the Japan-EU EPA, the Japan-US Trade Agreement, and other frameworks, together with heightened global trade policy uncertainty, could lead to changes in wheat procurement methods, increased imports, and intensified domestic price competition, potentially affecting core businesses such as flour milling, premixes, and pasta. Changes in the logistics environment due to geopolitical risk could also affect the stability of procurement and supply. In response, the company is pursuing enhanced cost competitiveness through consolidation of production at large coastal plants, development of differentiated products, and greater flexibility in procurement methods.

The cost of raw materials and goods procured from overseas is significantly affected by sharp fluctuations in exchange rates, and the earnings and financial condition of overseas subsidiaries also fluctuate due to translation gains and losses when converted into yen. Exchange rate fluctuations affecting the entire supply chain may also increase procurement costs and impact inventory valuation. The company works to mitigate earnings volatility through operation of forward exchange contract rules, close monitoring of market conditions, and timely price pass-through.

Competition is intensifying in the domestic market amid population decline and the progression of a low birthrate and aging society, making the business susceptible to changes in consumer behavior, economic conditions, and price increases. In particular, wheat bran, a byproduct of the flour milling business, is highly susceptible to supply-demand balance effects, and price fluctuations could directly impact profitability. The company seeks to mitigate these effects through appropriate pricing in line with market conditions, development of high value-added products, and optimization of byproduct inventory levels.

Driver shortages, an aging workforce, and stricter logistics-related regulations, combined with rising labor costs, fuel costs, and vehicle maintenance costs, are placing pressure on the management of transport companies and increasing the risk of bankruptcy, which could reduce transport capacity and delay product delivery to business partners. The company is promoting logistics efficiency measures such as improving difficult tasks, reducing long waiting times for trucks, leveling transport through extended lead times, expanding joint transport, and increasing loading weights.

In business operations in the United States and Asia, various uncertainties exist, including changes in political and economic conditions, changes in laws and regulations, geopolitical risks such as terrorism and conflict, logistics delays, and resurgence of infectious diseases, which could constrain business operations and affect profitability. The company seeks to ensure business continuity by strengthening information gathering on overseas conditions and risk monitoring, providing management and operational support to overseas affiliated companies, and promoting regional diversification.

Amid heightened consumer awareness of food safety and stricter laws and regulations, unforeseen factors could result in suspension of sales or product recalls. The company is strengthening its quality assurance system through acquisition of food safety management system certifications such as JFS-C, enhanced efforts against food defense and food mislabeling, maintenance of traceability systems, and multiple checks on food labeling.

Climate change could affect various stages of the supply chain, from raw material procurement to sales, and rising costs associated with responding to a decarbonized society could hinder business activities. The company has established a Sustainability Committee and a Sustainability Executive Committee to build a comprehensive response framework, and expressed its support for TCFD in February 2023, working in line with the recommendations on "Governance," "Strategy," "Risk Management," and "Metrics and Targets."

Raw material procurement could become difficult due to reduced harvest yields from global warming and natural disasters, rising procurement costs from higher energy costs, labor costs, and exchange rate fluctuations, and logistics disruptions caused by conflict, political instability, or epidemics. In addition, inadequate handling of environmental and human rights issues in procurement could damage the brand and worsen business results. The company seeks to reduce risk by securing a diversified, multi-sourced procurement structure across production regions and through appropriate price pass-through.

System failures could disrupt business operations, and data leaks involving personal information or data encryption incidents could result in response costs and affect business continuity. The company seeks to reduce risk through establishment of an information security basic policy and management regulations, employee education and training, strengthening of both hardware and software defenses against external attacks, and regular monitoring by the Board of Directors.

If alliances or acquisitions with other companies fail to achieve the initially expected results due to changes in the business environment or other factors, significant impairment losses on production facilities, goodwill, or investment securities may be required, which could adversely affect business results. The company manages this risk through detailed due diligence, examination of economic rationality by the Investment Committee, verification of investment effectiveness by the Board of Directors, and continuous monitoring after investment.