Inui Global Logistics Co.,Ltd.

The Group has obtained certificates of conformity to treaties such as the ISM Code and ISPS Code under the SOLAS Convention and implements safety management accordingly; however, in the event of a marine accident, there is a possibility of physical damage to vessels, human casualties, and environmental destruction. Should marine pollution such as an oil spill accident occur, it could have a significant impact on the Ocean Shipping Business and overall business results. The Group aims to reduce this risk by disseminating and operating the ISM Code and other standards throughout the Group.

In the Ocean Shipping Business, economic conditions in China, the United States, Oceania, and ASEAN directly affect freight rates and the tramp shipping market, while in the Warehousing & Transport Business, business results are influenced by economic trends and customers' efforts to reduce logistics costs and restructure operations. In particular, for handy-size vessels, there is a risk that vessel supply may stagnate due to the technical and economic difficulties of responding to environmental regulations. In the general warehousing and Document Storage Business, a decline in demand due to paperless initiatives is anticipated, and in the Moving Services Business, a decline in demand due to work-style reforms is also expected. The Company's policy is to flexibly develop its fleet in light of vessel price trends and the direction of environmental regulations.

In the event of a natural disaster such as an earthquake, storm, or flood, damage to vessels or facilities could adversely affect operations and lead to a decline in the value of owned assets. In particular, facilities accounting for a large portion of the revenue of the Real Estate Business are concentrated in the Kachidoki and Tsukishima areas, and if a large-scale disaster were to occur in this area, the impact on the Real Estate Business and the Company as a whole could be substantial. The Company is proceeding with renovation plans after verifying the durability and earthquake resistance of existing buildings, and is taking a leading role, together with residents, in disaster preparedness.

If the profitability or market value of owned assets such as vessels, land, buildings, and investment securities declines significantly, impairment losses or valuation losses may occur. In the fiscal year under review, the Company recorded an impairment loss of ¥425 million on construction in progress as an extraordinary loss in connection with the shift from a redevelopment plan to a renovation plan for Plaza Kachidoki. In addition, since the Company raises funds using the collateral value of real estate assets, a decline in asset value may also affect its fund-raising activities.

The Group conducts its business in accordance with current regulations and standards; however, future changes to regulations and standards and the resulting circumstances may affect business operations and performance. In the ocean shipping field, tightening environmental regulations is a particular concern, which could affect the operating costs of handy-size vessels and fleet development plans. At present, the Company's specific response is to continuously monitor trends in regulations and standards.

The majority of capital expenditure and working capital funds are raised through borrowings from financial institutions, and funds raised at variable interest rates may be affected by interest rate fluctuations. The Company hedges against this through interest rate fixation via interest rate swap transactions and reduction of interest-bearing debt; however, in a rising interest rate environment, future fund-raising costs may increase. Some borrowings are subject to financial covenants, and there is also a risk that a breach of these covenants could result in the loss of the benefit of time and thereby affect the Company's financial position.

The Company has established information security measures, natural disaster countermeasures, unauthorized access prevention, and monitoring systems for its core business systems; however, unauthorized intrusion from outside could result in significant damage. Against a backdrop of increasingly sophisticated and diversified cyberattacks, continuous strengthening of the safety management system is required. Currently, the Company addresses this through the establishment of a safety management system, but this does not guarantee complete protection.

Most of the revenue from the Ocean Shipping Business consists of U.S. dollar-denominated freight rates and time charter hire, while vessel repair costs and general administrative expenses incurred domestically are denominated in yen; the balance of U.S. dollar-denominated income and expenses means that exchange rate fluctuations may adversely affect profit and loss. In addition, differences between foreign-currency-denominated assets and liabilities affect income and expenses as valuation gains or losses at the time of settlement of accounts. The Group manages cash flow separately for yen funds and dollar funds to minimize foreign exchange transactions as much as possible, and responds to sharp yen depreciation by treating it as an opportunity to sell dollars and buy yen.

Under SPOT contracts, a mechanism is adopted to pass fuel price changes through to freight rates; however, in the event of a sharp price fluctuation, such pass-through may not keep pace, potentially affecting the earnings of operating vessels. To stabilize fuel costs, the Company procures fuel in places such as Singapore, where it is cheaper than in Japan, and hedges through forward booking. Sudden changes in fuel prices due to crude oil market conditions or geopolitical factors constitute a risk factor that directly affects the profitability of the Ocean Shipping Business.

Some of the Group's borrowings are subject to financial covenants, and a breach of these covenants could result in the loss of the benefit of time and thereby have a material impact on the Group's financial position. Because the Group has a fund-raising structure that utilizes the collateral value of real estate assets, there is also a risk that a decline in asset value could trigger a breach of financial covenants in a chain reaction. The Group aims to reduce the risk of breach through the reduction of interest-bearing debt and the maintenance of financial soundness.