HYOKI KAIUN KAISHA,LTD.

There is a risk that cargo handling volume will decline due to domestic and overseas economic fluctuations and changes in customers' economic activities. In the core coastal shipping business, transported items are concentrated in steel, and since steel demand is heavily influenced by economic trends, the impact on performance is particularly significant during economic downturns. As a countermeasure, the company concluded a capital and business alliance with the Yamato Kogyo Group in January 2025, and is also working to diversify the cargo handled with an eye toward a modal shift.

International tensions such as the prolonged Russia-Ukraine conflict, U.S. tariff policy, and the situation in the Middle East may affect the overall economy through logistics disruptions, import/export bans, and rising resource prices, and could in turn have repercussions on the company's management. Direct impacts on fuel costs and transport routes are of particular concern. Disclosure of specific countermeasures in the securities report is limited, and continuous monitoring remains a challenge.

Fuel and raw material prices have surged due to yen depreciation and the situation in the Middle East, and labor costs continue to rise. If these cost increases cannot be adequately passed through to shipper companies, profitability will be squeezed. The company is working to set appropriate rates based on mutual understanding with shipper companies, but insufficient pass-through will directly affect business performance. Maintaining price negotiation power remains an ongoing challenge.

In order to develop as a comprehensive logistics company, it is essential to secure excellent personnel capable of proposing logistics solutions, specialized personnel capable of handling increasingly complex customs procedures, and field personnel such as seafarers and warehouse workers; however, the labor shortage is becoming serious across the logistics industry as a whole. If sufficient personnel cannot be secured, this may lead to a decline in service quality or hinder business continuity. The company is addressing this by expanding recruitment channels and enhancing employee training.

Because the company relies heavily on indirect financing for fundraising, there is a risk that rising interest rates will increase interest payment burdens and affect business performance. Long-term borrowings related to large-scale capital investments such as warehouses and vessels are, in principle, procured at fixed interest rates to reduce future interest rate risk, while working capital is procured through a combination of fixed and variable interest rates to mitigate the interest payment burden.

The company holds many business fixed assets such as warehouses and vessels, and if profitability declines due to changes in the business environment and recovery of the invested amount becomes unlikely, application of impairment accounting may result in impairment losses that affect the financial position and results of operations. Given the characteristics of the logistics industry, which holds many large fixed assets, economic downturns and changes in demand structure directly translate into impairment risk.

The company provides debt guarantees for financial institution borrowings that some chartering counterparties have taken out to acquire vessels, and if the financial condition of a chartering counterparty deteriorates, the fulfillment of these guarantee obligations could affect the company's performance and finances. The risk is mitigated through collateral protection, and monitoring is conducted through periodic requests for financial statements and vessel visit activities.

There is cargo guarantee risk in cases where safety of transported and stored cargo is not sufficiently ensured, as well as navigation risk from vessel accidents and the like, and the occurrence of an accident may affect performance and finances. As preventive measures, the coastal and ocean-going shipping businesses hold monthly vessel safety meetings and provide cautionary guidance during vessel visits, while the warehousing division holds monthly health and safety meetings and safety and health training sessions conducted by outside experts.

If many operational systems, including core systems, fail to operate normally due to system failures or other issues, business operations may become impossible, affecting management. In addition, the company holds a large amount of customer information, and if information is leaked or lost due to cyberattacks or other causes, this could result in loss of trust and legal risk. The company continues to work on improving network system security while obtaining the latest information on information security.

If a natural disaster occurs at a business site, this may adversely affect performance through a decline in sales due to suspension of transport services for customers and the burden of repair costs for damaged facilities. In light of the recent frequency of natural disasters, the company is promoting company-wide initiatives aimed at maintaining customer service, ensuring employee safety, and preserving facilities, while placing importance on input from on-site personnel.