Inabata&Co.,Ltd.

There are inherent risks such as changes in laws and regulations, political and economic factors, and social disruptions in production and sales activities in Southeast Asia, Northeast Asia, North America, and Europe. In the current consolidated fiscal year, the combined sales ratio for Asia reached 46%, resulting in a high regional concentration risk. The Group is working to reduce risk by establishing systems capable of responding promptly to changes in laws, environmental regulations, and social conditions in each country, and by formulating and operating BCPs at major overseas locations.

For the Group, whose core business is the trading company business, human capital is the source of value creation, and it is essential to secure and develop personnel domestically and internationally across the four business segments as well as specialists in management, finance, IT, and other areas. If it becomes difficult to secure necessary personnel due to the declining birthrate, aging population, or increased labor mobility, or if human resource development does not proceed smoothly, this could adversely affect the Group's financial position and business results. The Group positions the development and strengthening of human capital as an important management issue and is working to enhance its internal systems.

The Group has made numerous investments and equity acquisitions in joint ventures and other entities, and in particular, investments in consolidated affiliated companies could adversely affect the Group's overall business results depending on trends in their financial position and business results. Under NC2026, the Group has set expanding profits through more active investment as a company-wide growth strategy, and the risks associated with expanding investment scale are also increasing. For significant new investment projects, the M&A specialist department and business divisions collaborate to conduct quantitative and qualitative evaluations, which are deliberated at review meetings attended by management, with regular monitoring conducted after execution.

As of the end of the current consolidated fiscal year, the total of notes and accounts receivable and electronically recorded monetary claims of ¥25,553 million, accounts receivable of ¥179,470 million, and inventories of ¥96,524 million accounted for 61% of total assets, resulting in significant bad debt loss risk from bankruptcy or civil rehabilitation of business partners. The Group extends credit to numerous business partners in Japan and overseas, but there is no guarantee of full recovery even with global credit management. Highly significant credit exposures are deliberated at review meetings attended by management, and accounts receivable and inventories are monitored and managed on a monthly basis.

Many of the products handled, including Information & Electronics Materials, chemical raw materials, food products, and Synthetic Resins, are affected by fluctuations in commodity market prices, and failure to respond flexibly to market fluctuations could adversely affect the Group's financial position and business results. In the current consolidated fiscal year, the solar power generation-related business within the Information & Electronics Business was actually affected by a decline in market prices. Each business division collects market information and closely monitors price trends, and works to mitigate risk through thorough inventory management.

The Group holds confidential information and personal information belonging to business partners and the Group itself, and if information leakage, destruction, or falsification occurs due to unauthorized external access or cyberattacks, this could adversely affect the Group's financial position and business results. Complete elimination of such risks is difficult due to the increasing sophistication of cyberattacks, and risks are also expanding due to the increase in remote work. The Group has implemented multi-layered countermeasures, including the introduction of endpoint security based on a zero-trust philosophy, establishment of a CSIRT, 24/7/365 monitoring by an external SOC, and enrollment in cybersecurity insurance.

The Group engages in a large volume of foreign currency-denominated transactions in its overseas production, sales, and trading activities, and may be affected by fluctuations in exchange rates. In the current consolidated fiscal year, the foreign currency translation adjustment account reached ¥40,460 million, indicating a significant impact on financial figures after conversion to yen. Although hedging transactions such as forward exchange contracts are conducted in principle, complete elimination of risk is difficult.

As the Group handles a wide range of products across four business segments in Japan and overseas, tightening of environmental regulations and demands to shift toward environmentally friendly products could affect its business, with the Synthetic Resins Business in particular facing risk from the trend away from plastics. Climate change risk is evaluated and monitored by the Sustainability Committee, overseen by the Board of Directors, and information is disclosed in accordance with the TCFD framework. The Group is addressing this by diversifying suppliers and strengthening sales of products that reduce environmental impact, such as recycled materials.

The Group is subject to government regulations such as export restrictions, tariffs, and investment regulations in the various countries where it operates, and with an overseas sales ratio of 54% in the current consolidated fiscal year, it may be significantly affected by import and export regulations. Failure to comply with regulations could lead to increased costs, adversely affecting the Group's financial position and business results. The Group has established an internal Export Control Committee to work to mitigate this risk.

For business strategy purposes, the Group has invested in and holds equity stakes in numerous companies, with the carrying amount of investment securities reaching ¥42,620 million at the end of the current consolidated fiscal year. There is a risk of impairment of held securities due to deteriorating stock market conditions or worsening financial position of investee companies, which could adversely affect the Group's financial position and business results. For specified investment shares, the Group regularly verifies its holding policy and rationale, and discloses details for each holding in its Corporate Governance Report.