KAMEI CORPORATION

Competition in the core Energy Business is intensifying due to the acceleration of the energy shift driven by the transition to a low-carbon and decarbonized society, fluctuations in crude oil prices, full liberalization of electricity and city gas retail markets, and increased entry into renewable energy businesses. If drastic changes in industry trends or intensified competition progress further, this could have a material impact on the financial position and operating results of the Group. The Group is responding by promoting the construction of a distribution network capable of stable supply and by strengthening services as a general trading company.

The Group holds numerous fixed assets for business use and finance lease assets, and recorded impairment losses on certain assets during the fiscal year under review. Depending on future land price trends and the earnings conditions of Group companies, the recognition of new impairment losses may become necessary, which could affect the financial position and operating results. The Group continues to work on strengthening its financial structure through measures such as the sale of inefficient assets.

The Group promotes M&A and capital alliances aimed at improving overall strength and strengthening its management foundation, but if post-acquisition or post-alliance business plans do not proceed as planned due to changes in market conditions or other factors, this could affect the financial position and operating results. The Group conducts due diligence on target companies and works to mitigate risk through regular monitoring of existing investments.

The Group acquires and holds shares in other companies for the purpose of maintaining and strengthening business relationships, and if significant fluctuations occur in share prices due to economic conditions or stock market trends, this could affect the financial position and operating results. Each year, the Group examines individual shareholdings to assess whether the significance, benefits, and risks of holding them are commensurate with the cost of capital, and verifies the rationality and necessity of continued holding.

In addition to exchange rate fluctuation risk related to import transactions, significant fluctuations in foreign exchange rates may affect the yen conversion of the financial statements of overseas consolidated subsidiaries. While hedging through forward exchange contracts is implemented in the normal course of business, there remains a residual risk that sudden rate fluctuations cannot be fully addressed.

The Group borrows from financial institutions to meet funding needs for operating activities, capital expenditures, M&A, and other purposes, and if borrowing rates rise, financial costs will increase, which could affect the financial position and operating results. The Group seeks to reduce risk by diversifying funding sources and spreading out borrowing periods.

If facilities such as oil depots, filling stations, factories, and warehouses are damaged by natural disasters such as earthquakes or typhoons, delays in shipment of petroleum products and LP gas, as well as equipment repair needs, may arise, which could affect the financial position and operating results. Although measures such as BCP formulation, introduction of an employee safety confirmation system, earthquake resistance measures, and disaster drills have been implemented, risk remains in the event of severe damage.

The Group handles petroleum products and LP gas at oil depots, filling stations, and sales facilities, and if environmental pollution occurs due to fires, explosions, or fuel oil spills at facilities, compensation payments may arise, which could affect the financial position and operating results. The Group strives to ensure safety through regular safety inspections based on relevant laws and internal regulations, as well as leak prevention measures.

If a failure occurs in information systems essential to business operations due to natural disasters or human or quality-related causes, this may disrupt sales activities and logistics operations, which could affect the financial position and operating results. Additionally, in the event of a leak of personal information, there is a risk of loss of social credibility and payment of damages. The Group takes measures through thorough crisis management response that considers information security risk and employee training.

The Group is subject to a wide range of laws and regulations, including the Petroleum Stockpiling Act, the High Pressure Gas Safety Act, the Fire Service Act, the Food Labeling Act, the Construction Business Act, and the Pharmacists Act. If legal regulations that cannot currently be foreseen are established in the future and the Group is unable to respond appropriately, this could affect the financial position and operating results due to administrative guidance or loss of social credibility. The Group works to thoroughly ensure legal compliance through strengthening its compliance system.