halmek holdings Co.,Ltd.

Because the Group conducts product procurement and sales operations utilizing communication networks, if a system failure or information leakage occurs due to a cyberattack or unauthorized access by a third party, business suspension or other consequences may result. The Group has established a framework whereby it undergoes security assessments by external organizations and reports and discusses progress at the Risk and Compliance Committee on a quarterly basis; however, it recognizes that complete elimination of this risk is difficult due to ongoing innovation in IT technology.

The Group holds a large volume of customer personal information acquired through its business operations, and if a leakage occurs due to intent, negligence, or a cyberattack, damages such as claims for compensation, loss of social credibility, and business suspension may result. While management has been strengthened through the establishment of personal information protection regulations and acquisition of the Privacy Mark, this risk is intertwined with security risk and requires ongoing response.

As of the end of the current consolidated fiscal year, the Group recorded goodwill of ¥4,452 million, representing a high proportion of 21.0% of total assets. Because the Group adopts IFRS, no periodic amortization burden arises; however, if the profitability of the businesses subject to goodwill declines, recognition of impairment losses may be required, which could materially affect operating results. While the Group recognizes that the likelihood of this risk materializing is not high, it continues to manage this risk by ensuring profitability and financial soundness.

The Group may carry out M&A or capital and business alliances to achieve sustainable growth; however, if the anticipated results are not achieved due to changes in the business environment after due diligence, or if an alliance is dissolved or modified, this may affect the Group's financial position and operating results. The Group recognizes that reasonable prediction of the materialization of this risk is difficult, and its policy is to take countermeasures through continuous performance monitoring before impairment losses on goodwill or fixed assets occur.

Raw material prices and logistics costs may rise due to domestic and overseas commodity market and exchange rate fluctuations, the operating conditions of suppliers, and rising energy prices and disruptions to maritime shipping networks associated with the intensifying situation in the Middle East. The Group strives to reduce the impact through early ordering to shorten the period of exposure to price fluctuation risk and through diversification of procurement sources and logistics methods; however, if these effects become prolonged, this may affect operating results.

The Group is subject to numerous legal regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, and the Pharmaceuticals and Medical Devices Act. If business activities are restricted due to regulatory tightening or new regulations, this may affect operating results. The Legal Department leads efforts to gather information on regulatory trends and consider preemptive countermeasures, and the Group recognizes that the likelihood of this risk materializing is low; however, should it materialize, the Group's policy is to respond sincerely with

If inventory becomes excessive due to unexpected fluctuations in sales, disposal costs or valuation losses may arise, affecting operating results. In addition to refining inventory, sales, and purchasing plans and strengthening inventory control, the Group has introduced an inventory reduction process by holding outlet sales twice a year (August and February) following its twice-yearly sales events (June and November-December), and recognizes that this risk is being appropriately controlled.

Because product delivery is entirely outsourced to external delivery companies, if a significant increase in delivery costs or difficulty securing delivery companies occurs due to worsening labor shortages among carriers, this may affect operating results. The Group has built relationships with multiple delivery companies and is developing a framework to flexibly respond to changing circumstances; however, the risk of a continuing structural labor shortage across the logistics industry as a whole remains.

The Group is undertaking new businesses to expand its business scale and diversify revenue sources; however, because a certain period and level of investment are required before these businesses become stably profitable, this may reduce overall profit margins, and if changes in the business environment cause progress to deviate from initial plans, recovery of the investment may become difficult. The Group controls losses arising from new businesses to below a certain amount through budgetary controls and recognizes that the likelihood of this risk materializing is not high; however, the risk of impact on financial position and operating results continues to exist.

The operations of the Group are heavily dependent on Representative Director and President Takao Miyazawa, and if he becomes unable to perform his duties over the long term for any reason, this may affect operating results. Through strengthening of the management organization, a framework has been established to enable business operations to continue without issue in the event of a short-term absence; the Group continues to strengthen its management organization to address the possibility of a long-term absence.