Harima-Kyowa Co., LTD.

In the daily necessities distribution industry, oligopolization by major retailers is progressing, and there is a growing trend toward consolidation among wholesale trading partners. This may reduce the Group's business opportunities and intensify competition among wholesalers, potentially having an adverse effect on business results. In response, the Group is working to maintain relationships with existing customers and diversify revenue by providing distribution services such as contract logistics.

Sales in the Logistics segment are heavily weighted toward suppliers delivering to specific retail companies, meaning the segment's performance is highly dependent on the sales trends of these specific retail companies. In addition, the opening and expansion of distribution centers in response to increased contracted freight volume may increase capital expenditures and center operating costs, potentially affecting business results. In response, the Group is strengthening collaboration with specific retail companies and promoting efficient center operations through the timely renewal of logistics equipment.

A portion of delivery operations and warehouse operations is outsourced to external contractors, and if appropriate outsourcing partners or transaction terms cannot be secured, it may affect each business. Since the delivery network originating from distribution centers relies on external parties, changes in the management conditions of outsourcing partners or the market environment pose a risk directly linked to business continuity. In response, the Group is focusing on maintaining good relationships with outsourcing partners and securing a diverse range of such partners.

If a natural disaster such as an earthquake occurs in the areas where distribution centers, the head office, or other facilities are located, it may disrupt business activities such as shipping and delivery of products, potentially affecting the Group's financial position and business results. Business continuity in the event that a logistics facility is damaged is a major concern. In response, the Group has established a system to provide backup from other business locations in the event that the logistics functions of a particular business location become impaired.

Regarding receivables arising from ongoing transactions with customers and suppliers, if such receivables become uncollectible due to deterioration in the business performance of trading partners, it may affect the Group's business results. Due to the nature of the wholesale business, receivable balances tend to accumulate across numerous trading partners, creating a risk that deterioration in the management condition of a specific trading partner will directly affect the Group's finances. In response, the Group is working to control bad debt risk through thorough receivables management and enrollment in trade credit insurance.

Much of the Group's sales activities, product management, and distribution center operations rely on computer network systems, and if the system stops functioning due to a large-scale disaster, accident, computer virus intrusion, or similar event, recovery may take time and affect business results. Because a system outage would ripple through the entire process of order receipt, shipment, and inventory management, it constitutes a significant risk to business continuity. In response, the Group has installed core equipment in a data center equipped with seismic isolation facilities and private power generation equipment, and has implemented server redundancy and data backup.

If various viral infections spread among employees, the Group may be forced to temporarily suspend sales activities and distribution center operations, potentially affecting business results. Because distribution centers are environments where large numbers of employees gather, the impact of an outbreak would be particularly significant. In response, the Group has established an appropriate management system aimed at prevention and containment of the spread of infection.