Scroll Corporation

There is a risk that demand for apparel, general merchandise, cosmetics, health foods, and other products may decline due to economic downturn, the declining birthrate and aging population, and changes in consumer purchasing behavior. Deterioration of the market environment could have a significant impact on the Group's financial position and business performance. As countermeasures, the Group is pursuing continuous review of its business portfolio, formulation of a growth strategy for the Solutions Business, and rapid response through STEP management and SMS management.

If a pandemic, large-scale natural disaster, system trouble, or other event occurs on a scale exceeding expectations, logistics operations run across multiple sites could be suspended or delayed, potentially disrupting the storage and shipment of merchandise sold as well as products belonging to Solutions Business clients. The Group addresses this through multi-site logistics operations (Kanto, Tokai, Kansai) and ongoing BCP training.

Business transactions with consumer co-operatives as a whole account for 41.2% of the Group's total transaction volume, and any disruption to transactions with the Japanese Consumers' Co-operative Union or individual co-operatives could have a significant impact on the Group's financial position and business performance. The Group is strengthening its business portfolio by expanding the Solutions Business and improving its profitability, and is working to build revenue pillars beyond the Mail Order Business.

If confidential information such as personal data is leaked, or if business operations are suspended due to unauthorized access or cyberattacks, this could result in loss of trust, decreased sales, increased inventory, and losses, in addition to costs for post-incident response, potentially affecting the Group's financial position and business performance. The Group addresses this through evaluations by external specialized organizations, the organization of a cross-group security countermeasure team, and regular employee training.

Since merchandise imports for the Mail Order Business and E-Commerce Business are mainly denominated in US dollars, a significant depreciation of the yen could raise procurement costs and affect the Group's financial position and business performance. The Group hedges this risk through forward foreign exchange contracts and sets appropriate sales prices that reflect the foreign exchange impact at the time of procurement.

Changes in global supply and demand for resources and raw materials, shifts in social conditions, natural disasters, and other events could cause logistics costs and raw material prices to surge, affecting overall business operating costs. The Group is working to reduce costs across the entire supply chain by securing multiple procurement routes and collaborating with partner companies.

Against the backdrop of population decline and the declining birthrate and aging population, there is a risk that it will become difficult to stably secure personnel with management, business development, or specialized technical skills, as well as personnel to handle labor-intensive work at logistics warehouses. A shortage of personnel could lead to a decline in service quality and reduced operational efficiency, affecting the Group's financial position and business performance. The Group addresses this through the introduction of a job-based personnel system, utilization of foreign workers, mechanization of operations, and labor-saving measures.

In corporate acquisitions aimed at strengthening the business portfolio, there is a risk that expected profit growth or synergies may not be realized, and unexpected liabilities or additional capital contributions may arise. The Group addresses this through due diligence including pre-acquisition external evaluations, deliberation by the Business Review Committee under the Audit and Supervisory Committee, multiple rounds of Board of Directors deliberation, and promotion of PMI.

If profitability declines or expected cash flows are not achieved with respect to goodwill recorded through corporate acquisitions and other tangible and intangible fixed assets such as business equipment and real estate, recognition of impairment losses may become necessary, potentially affecting the Group's financial position and business performance. The Group strengthens investment governance through prior deliberation on investment projects and the establishment of a post-execution monitoring framework.

In the Payment Processing Service of the Solutions Business, the Group makes advance payments on behalf of consumers, and if bad debts exceed estimates or if it becomes necessary to change the method of calculating the allowance for doubtful accounts, additional provisions could affect the Group's financial position and business performance. The Group addresses this through appropriate merchant management, maintaining and improving credit assessment accuracy, and regularly reviewing market trends by industry.