Chuetsu Pulp & Paper Co., Ltd.

The Paper & Pulp Manufacturing business, which accounts for approximately 80% of net sales, is a domestic demand-oriented industry, and demand trends driven by fluctuations in the domestic economy as well as changes in market prices directly affect operating results and financial position. Domestic demand for paper is already on a declining trend, which is recognized as an urgent issue. As countermeasures, the Company is working to strengthen its earnings base through transformation of its product portfolio and reinforcement of its pulp production system.

The Company procures various raw materials and fuels such as wood chips, heavy oil, waste paper, and chemicals from external sources, and fluctuations in international and domestic market conditions directly affect procurement costs. A rise in raw material prices could push up manufacturing costs and adversely affect operating results and financial position. The annual securities report does not disclose specific hedging measures or procurement source diversification strategies.

Strengthening of regulations on fossil fuel use aimed at addressing climate change, and the resulting cost increases, could affect business operations. In addition, tightening of regulations concerning unsustainable procurement of wood, a key raw material, may also affect operating results and financial position. Given the characteristics of the paper and pulp industry, dependence on energy and wood resources is high, and the impact of stricter regulations could be significant.

Failure to comply with environmental regulations could lead to reputational risks related to environmental protection, including deterioration of relations with local communities and the occurrence of opposition movements. Such reputational risks could also affect business continuity and the maintenance of permits and licenses, potentially adversely affecting operating results and financial position. The annual securities report does not provide specific details of the environmental management system.

As the Company engages in import and export transactions, fluctuations in the exchange rates of transaction currencies could affect operating results and financial position. Since import costs for raw materials and export sales are affected by exchange rate movements, earnings may be impacted in either a yen depreciation or appreciation scenario. The annual securities report does not disclose specific hedging measures.

Although the Company is working to improve capital efficiency through group financing, future interest rate fluctuations could increase borrowing costs, potentially affecting operating results and financial position. In a rising interest rate environment, there is a risk of increased interest payment burden on interest-bearing debt.

If production facilities suffer extensive damage due to natural disasters such as natural calamities or man-made disasters such as terrorism, the resulting suspension or reduction of production activities could have a material impact on operating results and financial position. As a countermeasure, the Company has formulated a BCP (Business Continuity Plan) and established a system to ensure business continuity in the event of such risks materializing.

If an unknown infectious disease, such as the novel coronavirus (COVID-19), spreads, decreased demand or temporary suspension of production activities due to employee infections could affect operating results and financial position. This also includes the risk of operational suspension due to requests from government and local administrative authorities. As a countermeasure, the Company continues business activities while working to prevent the spread of infection, including recommending basic infection prevention measures during epidemic periods.

In conducting its business activities, the Company is subject to various laws and regulations, and may be exposed to risks of litigation arising from violations of laws and regulations, among other causes. Depending on the outcome of litigation, damages compensation or restrictions on business activities could arise, potentially affecting operating results and financial position.

In addition to the risks listed above, there is a risk of losses arising from contingent liabilities in other areas, which could affect operating results and financial position. The annual securities report does not provide explicit disclosure of the specific nature or scale of such contingent liabilities.