Daio Paper Corporation

If significant declines in demand for Paper & Paperboard products and household paper products or a marked deterioration in product market conditions occur, this may affect the financial position and operating results through decreases in sales volume and sales amount. As a countermeasure, the Paper & Paperboard business implements flexible shifts in production items at the Mishima Plant, Kani Plant, and other facilities, while the Home & Personal Care business is pursuing a composite sales strategy leveraging a wide product lineup ranging from tissue paper to absorbent products.

The Company procures raw materials and fuels such as wood chips, waste paper, chemicals, heavy oil, and coal both domestically and internationally, and fluctuations in raw material and fuel prices as well as exchange rate movements associated with foreign currency-denominated transactions may affect the financial position and operating results. The escalation of tensions in the Middle East is expected to have an increasingly significant impact on the sustained high level of raw material prices and on transportation costs going forward. As countermeasures, the Company is hedging risk through forward foreign exchange contracts, diversifying procurement sources, and securing a stable supply system through the promotion of "SDGs procurement."

In overseas business operations in China, South Korea, Southeast Asian countries, Brazil, and other regions, there is a risk of changes in the economic environment due to exchange rate fluctuations, regulations imposed by local governments, deterioration in diplomatic relations or public sentiment, political instability, and other factors. There is also a risk of raw material procurement uncertainty and raw material/fuel price increases resulting from the situation in the Middle East. The Company seeks to minimize such risks by sharing the latest information collected by group companies and responsible departments in Japan among stakeholders.

In the event of natural disasters such as earthquakes and typhoons in regions where production and logistics facilities or suppliers are located, damage to production equipment, operational disruption, and supply chain breakdowns may occur, potentially affecting the financial position and operating results through supply disruptions of raw materials and products and the incurrence of recovery costs. In the event of the spread of infectious diseases, in addition to a decline in demand, there are also concerns about supply-side impacts such as constraints on plant operations, difficulty securing personnel, and logistics disruptions. The Company is working to improve the effectiveness of its risk response by establishing a group-wide BCM system, formulating and reviewing BCPs, and conducting regular drills.

The Company is subject to a wide range of domestic and international laws and regulations, including environmental regulations, intellectual property rights, product safety, competition law, and labor laws. Failure to comply with these regulations, or an inadequate response to regulatory changes, may affect the continuity of business, financial position, and operating results. There is also a risk of becoming involved in litigation related to product liability, intellectual property rights, contractual relationships, and other matters. The Company is strengthening compliance through the dissemination and education of the "Daio Group Code of Conduct" and has established a system for prompt response in cooperation with law firms.

The Company recognizes business disruption and information leakage due to cyberattacks as significant risks, and implements technical measures such as firewalls, the latest virus countermeasures utilizing AI machine learning, unauthorized access monitoring, and email filtering. Regarding the use of internal AI, the Company has established rules limiting use to company-authorized tools and prohibiting the input of personal or confidential information, while also conducting annual targeted attack email drills and regular system recovery drills.

Due to the progression of the declining birthrate and aging population as well as intensifying competition for talent in the labor market, there is a possibility that securing personnel with specialized knowledge and advanced skills may not proceed as planned, which could affect the smooth conduct of business operations and the maintenance of competitiveness. There is also a risk that, as the human resource profile and skills required change along with business structural transformation, the development and deployment of existing personnel may become insufficient. The Company is addressing this through strengthened recruitment of new graduates and experienced personnel, enhancement of education and training systems, review of the compensation system, and promotion of work style reforms.

Although the Company is working to reduce interest-bearing debt, a significant rise in interest rates may affect the financial position and operating results. As a countermeasure, the Company primarily raises funds through long-term borrowings at fixed interest rates in order to address the risk of short-term interest rate increases.

Some of the loan agreements with financial institutions include financial covenants based on the amount of net assets on the consolidated balance sheet and ordinary income/loss on the consolidated statement of income. If these covenants are breached, the Company may be required to repay borrowings, which could affect the financial position and operating results. Maintaining financial discipline is an important issue, and this is a risk requiring particular attention during periods of deteriorating business performance.

The Company holds fixed assets such as property, plant and equipment and goodwill, and if a significant deterioration in the business environment leads to a decline in business profitability or a marked drop in market prices, impairment losses may occur, affecting the financial position and operating results. The Company verifies the recoverability of book value using the higher of estimated future cash flows or net realizable value, and appropriately processes impairment for assets requiring such treatment.