Hokuetsu Corporation

A decline in demand due to economic downturns or changes in demand structure, as well as fluctuations in product prices resulting from a high proportion of market-linked products, may affect business performance. As the Paper & Pulp Business and the Packaging & Paper Converting Business are core operations, sensitivity to changes in economic conditions is high. In response, under the "Medium-Term Management Plan 2030," the Group has set forth basic policies of accelerating the business portfolio shift, strengthening competitiveness, and pursuing sustainability management, and is working to strengthen its earnings base.

The Group is exposed to risks of fluctuations in logistics costs and raw material/fuel purchase prices resulting from changes in the international situation, such as the Russia-Ukraine issue and heightened tensions in the Middle East, as wood chips, waste paper, chemicals, gas, heavy oil, and other raw materials and fuels are among its main procurement items. Rising raw material and fuel costs directly lead to increased costs and may affect business performance. Based on the "Hokuetsu Group Basic Policy on Raw Material Procurement," the Group strives for advantageous purchasing and stable procurement through diversification of suppliers, among other measures.

As the Group procures much of its wood chips, heavy oil, and other raw materials and fuels from overseas, and operates the Paper & Pulp Business in Canada and France and the paper converting business in China, there is a risk that political instability, economic deterioration, or regulatory changes in these locations could make it difficult to secure raw materials and fuel or cause sharp price fluctuations. If such events occur, the resulting increase in procurement costs or disruption to business continuity may affect business performance. Overseas subsidiaries have established systems for prompt response to legal amendments and other changes based on advice from local lawyers and consultants.

As the Paper & Pulp industry is capital-intensive and the Group holds a large amount of tangible fixed assets, a sharp future change in the business environment that causes the value of fixed assets to decline more than expected could necessitate impairment accounting, which may have a material impact on business performance. Decisions on capital investment are based on careful analysis, including forecasts of supply and demand in the product market, but uncertainty in future forecasts cannot be eliminated. The Group continuously monitors market trends even after capital investment and strives to maintain an optimal production structure.

If production facilities are damaged by natural disasters such as earthquakes, floods, typhoons, or heavy snow, or by sudden equipment trouble, making it difficult to continue production and causing disruption to the supply chain, restoration may require considerable time and expense, which may affect business performance. In addition to taking out various types of insurance, the Group has established a business continuity plan (BCP) based on the "Emergency Response Regulations" and formulated "Emergency Response Standards," building a system to respond to emergencies.

Global warming and abnormal weather, such as droughts, forest fires, torrential rains, and large typhoons, may affect the procurement of wood raw materials and other raw materials, and also pose a risk of impairing the value of the forest assets held by the Group and causing damage across the entire supply chain. The Group is promoting fuel conversion investments toward biomass fuel to reduce greenhouse gas emissions, and, based on TCFD recommendations, reflects risks and opportunities in its management strategy, aiming to achieve net-zero greenhouse gas emissions by 2050. In fiscal year 2025, the Group received ratings of A- for "Climate Change," A for "Forests," and A for "Water Security" from CDP.

Although business systems are built on a private cloud, if an information security incident occurs due to cyberattacks or other causes, it may disrupt business operations and affect business performance. Based on the "Hokuetsu Group Basic Policy on Information Security," the Group conducts targeted phishing email training, security vulnerability diagnostics for IT and OT environments, and has introduced applications to prevent the execution of malicious programs. The Group has also established a backup system for information assets and taken out cyber insurance, establishing an emergency response system in the event of an incident.

Labor shortages resulting from the declining birthrate and aging population may make it difficult to secure human resources, and there is a risk that deterioration of the working environment or a decline in employee motivation could lead to lower labor productivity and turnover, affecting business activities. Based on the "Hokuetsu Group Diversity Policy" and the "Hokuetsu Group Human Resource Development Policy," the Group is promoting human capital management, including new graduate and experienced hires recruitment, securing diverse talent, fostering a comfortable working environment, and measures to achieve work-life balance.

If an action is taken with the aim of temporarily gaining control of management through a large-scale share purchase or similar act and transferring important tangible or intangible management assets, medium- to long-term corporate value or the common interests of shareholders could be impaired. The Group has established a policy of taking appropriate measures, such as ensuring shareholders have sufficient time and information to consider the matter, based on the Companies Act, the Financial Instruments and Exchange Act, guidelines on conduct in corporate acquisitions, and other related laws and regulations.

The Group is affected by exchange rate fluctuations in product export transactions, raw material and fuel import transactions, and the performance of overseas subsidiaries, and as it holds a certain amount of interest-bearing debt, a rise in market interest rates may affect business performance and investment strategy. For foreign exchange risk, the Group hedges a portion of exposure through forward exchange contracts, and for interest rate risk, it strives to improve the efficiency of Group funds through measures such as Group financing.