UPR Corporation

If demand for pallet rental declines due to an economic downturn or a slowdown in personal consumption, in addition to a decrease in rental sales, rising storage costs from increased returns and an increased depreciation expense ratio could pressure profitability. There is also a risk that soaring prices of raw materials such as wood, plastic, and metal, as well as rising energy and transportation costs, could push up procurement prices and operating costs. In response, the Company continues to optimize pallet procurement management and inventory holdings, improve operational efficiency, and promote pass-through of costs to rental unit prices.

The Group holds approximately 5.28 million rental pallets, giving it a competitive advantage in the market; however, if intensifying competition leads to price declines or a relative decline in the Group's competitive advantage, business performance could be affected. There are also concerns about cost increases due to rising depot operating expenses, transportation costs, and depreciation expenses, as well as reduced sales opportunities resulting from companies scaling back investment in logistics facilities. In response, the Company is promoting the expansion of joint-use and joint-collection schemes, strengthening proposals to priority industries, and pursuing efficiency improvements through depot consolidation and the introduction of pallet washing machines.

The Solutions Business has relatively low barriers to entry, creating a risk that the Company's services and technologies could become obsolete due to accelerating technological innovation and new market entrants. In technology areas such as active RFID and communication modules, price competition may intensify as miniaturization, cost reduction, and power efficiency advance. In response, the Company is strengthening solution proposals based on customer challenges, reviewing unprofitable businesses, and promoting R&D and collaboration with external partners to maintain and enhance competitiveness.

During the fiscal year under review, more than 99% of the plastic pallets procured by the Company were sourced from two suppliers, Sanko Co., Ltd. (including its subsidiaries) and Gifu Plastic Industry Co., Ltd., resulting in an extremely high degree of concentration among specific suppliers. If transactions with these suppliers were to become unsustainable for any reason, it could cause significant disruption to the product supply system, potentially having a material impact on the business and financial results. The Company has maintained good relationships with these suppliers since the start of transactions and intends to continue these relationships going forward.

The Group has expanded overseas, mainly in the ASEAN region, and plans to strengthen its logistics equipment rental and sales operations there. However, if risks such as deterioration of local economic conditions or business environments, unexpected changes in laws and regulations, security deterioration or terrorism, differences in business customs, or natural disasters and infectious diseases materialize, they could have a material impact on the business and financial results. In response, the Company maintains close cooperation with local subsidiaries and continuously gathers information.

The Group procures working capital and capital expenditure funds through borrowings from financial institutions, and sudden fluctuations in financial market conditions or economic trends could have a material impact on its financial position and business results. While a portion of the borrowings is procured at fixed interest rates to mitigate interest rate fluctuation risk, the variable-rate portion remains exposed to the risk of increased costs in a rising interest rate environment.

The Group applies the "Accounting Standard for Impairment of Fixed Assets" to its fixed assets, and if significant changes in the business environment or deterioration in earnings conditions require the recognition of impairment losses, this could have a material impact on business results. Grouping is primarily based on business units as the basic unit, and deteriorating performance in a specific business could trigger impairment. In response, the Company monitors conditions by business segment and has established a system for early detection and response.

In the Logistics Business, depot management and operation of held rental assets are outsourced to third parties. If circumstances at the outsourcing partner make depot management and operation impossible, or if management fee negotiations at contract renewal do not proceed as expected, this could have a material impact on the business and financial results. In response, the Company continues to maintain good relationships with outsourcing partners and to consider alternative partners through ongoing information gathering.

If unexpected unauthorized access or computer virus intrusion leads to an information leak, or if a system failure occurs due to a natural disaster or accident, this could lead to a decline in the services provided, potentially having a material impact on the business and financial results. The Company has established information security management regulations and system management guidelines, and has built an early recovery system through distributed server placement at two data centers in Eastern and Western Japan, regular backups, and timely monitoring of operational status.

As business expands, continuous recruitment of personnel becomes necessary; however, if new graduate and mid-career recruitment activities do not proceed as planned, this could have a material impact on business results through decreased revenue or increased costs. In response, in addition to continuing active recruitment activities, the Human Resources Development Group within the HR Department has systematized employee training programs to improve the quality of employees.