Tokushu Tokai Paper Co., Ltd.

In the Industrial Materials Business, which handles Corrugated Board Base Paper & Kraft Paper and other products, a deterioration in the economic environment causing logistics disruption, or reduced agricultural product distribution volume due to poor weather, could decrease demand for industrial packaging materials and negatively impact business performance. In addition, the procurement price of recovered corrugated paper, the main raw material, is susceptible to overseas conditions including in China and ASEAN countries, and there is a risk that procurement prices could surge due to significant changes in overseas conditions. As countermeasures, the company is focusing on establishing a low-cost, high-efficiency production system, joint procurement with Nippon Paper Industries Co., Ltd., and stable procurement from nearby sources.

In the Specialty Materials Business, which handles Specialty Printing Paper and Specialty Functional Paper, demand for paper as an information transmission medium is trending downward due to progress in digitalization and declining publication volumes. Furthermore, if the varying applications of individual products disappear due to changes in societal trends, demand could decline sharply, negatively impacting business performance. As countermeasures, the company is working to consolidate and streamline its production system while pursuing potential needs and revising its product portfolio.

In the Household Products Business, which handles Paper Towel and Toilet Paper, market conditions are prone to fluctuation due to oversupply and price competition, which could negatively impact business performance. In addition, the volume of high-grade recovered paper generated is decreasing year by year with the progress of paperless practices, creating a risk that procurement prices could surge. As countermeasures, the company is working to improve product quality, strengthen its network, and secure stable procurement sources from nearby areas.

While the Resource Recycling Business (Waste Treatment & Recycling) anticipates robust demand due to the societal shift away from fossil fuels, a sharp increase in demand for waste fuel could intensify competition in waste collection, which could negatively impact business performance. As countermeasures, the company is pursuing collaboration with peer companies in consideration of logistics, and is working to expand its collection area through M&A and other means.

Because the three paper businesses use large quantities of raw materials and fuel, fluctuations in raw material prices directly affect business performance. Since much of the pulp used in large quantities in the Specialty Materials Business is procured from foreign countries, a depreciation of the yen, primarily against the U.S. dollar, could raise procurement costs and negatively impact business performance. As countermeasures, the company is diversifying its procurement sources both domestically and internationally, and is focusing on building good relationships with each business partner.

If a business partner's management condition faces financial difficulties due to market fluctuations, industry restructuring, or other factors, this could affect the business performance and financial condition of the Group. At present, no possibility of this risk materializing has been identified, but it is recognized as a potential risk. As a countermeasure, each business division works in close cooperation to strengthen its management control system.

If turmoil occurs in financial markets or an event significantly undermines confidence in the company, fundraising could become difficult. At present, no material risk is recognized, but attention must be paid to future changes in the financial environment. As countermeasures, the company is working to build good business relationships with financial institutions and strengthen its fund management system.

As a group primarily engaged in manufacturing and sales operations, the Group is subject to various laws and regulations, including environmental regulations, the Industrial Safety and Health Act, product liability law, and regulations related to intellectual property rights. Responding to regulatory revisions and related litigation could lead to restrictions on business activities and increased costs, such as substantial expenses and the installation of environmental countermeasure equipment. As a countermeasure, the company has established a Compliance Committee as a standing body, and continues to conduct management with legal compliance in mind while monitoring trends in amendments to environment-related laws.

Many of the Group's plants and facilities are concentrated in Shizuoka Prefecture, so a large-scale earthquake or other operational disruption event could affect business performance and financial condition. In addition, if employees contract a serious infectious disease, plant operations may need to be suspended to prevent the spread of infection, and the duration and scope of such a suspension cannot be predicted. As countermeasures, the company implements regular preventive maintenance, education and training, establishment of an emergency response organization, and introduction of remote work and other measures.

The Group holds a large amount of tangible fixed assets, and depending on declines in market value or future cash flow conditions, impairment of fixed assets may become necessary. In addition, the Group has recorded goodwill in connection with the consolidation of Suruga Service Kogyo Co., Ltd., Toei Holdings Co., Ltd., and Kito Holdings Co., Ltd. as subsidiaries, and if profitability declines due to economic fluctuations or other factors, recording an impairment loss could affect business performance and financial condition. Investment securities also carry a risk of becoming a loss in the relevant period if their market value declines significantly.