HOKKAIDO GAS CO., LTD.

If long-term disruptions occur in the procurement of raw materials such as LNG or natural gas, it may affect the supply of city gas and electricity. Since LNG, which accounts for the majority of raw materials, relies on overseas imports, troubles with supply projects or LNG carriers pose a direct risk. As countermeasures, the company has diversified procurement sources through portfolio contracts based on multiple long-term agreements and has established an emergency interchange procurement system, arranging a flexible procurement framework combining alternative and spot procurement.

If large-scale natural disasters damage manufacturing facilities such as LNG bases or supply facilities such as gas pipelines, it may disrupt the supply of city gas. In addition, if a large-scale blackout occurs, it may affect the manufacturing and supply of city gas, and if power generation facilities are disrupted, market procurement of electricity may become necessary, affecting the electricity business's earnings. The company works to minimize impact through the formulation of a Business Continuity Plan (BCP), improving the earthquake resistance of manufacturing and supply facilities, tsunami countermeasures, and the establishment of in-house power generation facilities.

If troubles or accidents such as leaks or malfunctions occur in city gas manufacturing or supply facilities, supply disruptions and customer damage may result, causing direct and indirect costs as well as a decline in social credibility, which may affect business performance. The company implements planned facility inspections and renewals, backup measures for manufacturing facilities, dual power supplies for equipment, and the development of pipeline networks. In addition, the company has established a system in which specialized staff at the Supply Disaster Prevention Center handle security command 24 hours a day, 365 days a year, working to prevent gas accidents and secondary disasters.

If national policies or systems related to energy or the environment are changed, it may affect business earnings through customer attrition due to intensified market competition or the incurrence of regulatory response costs. In addition, insufficient response to social trends toward decarbonization and customer needs poses a risk of declining competitiveness. As countermeasures, the company develops a comprehensive energy service business through close dialogue with customers and related organizations, expansion of renewable energy power sources, and efforts toward next-generation technologies such as hydrogen and methanation.

If procurement prices for raw materials such as LNG fluctuate due to changes in crude oil prices, exchange rates, or market prices, it may affect business earnings. While foreign-currency-denominated sales and purchase contracts also carry exchange rate risk, the raw material cost adjustment system allows fluctuations to be reflected in gas rates, making the medium- to long-term impact on business earnings minor. In the electricity business, there is also a risk of fluctuation in power source procurement prices, and the company works to avoid procurement risk through the use of its own power sources and diversification of power source procurement destinations.

Since more than half of net sales consist of city gas and LNG Sales, if temperature trends deviate from normal values, gas demand may fluctuate from projections, affecting business earnings. In particular, in Hokkaido, a region of heavy snowfall and cold climate, demand increases from winter to early spring, so temperature fluctuations during this period tend to have a greater impact on business earnings. The company works to mitigate the impact of temperature by strengthening gas sales for industrial and cogeneration use and expanding energy share through comprehensive energy services.

Due to the nature of the infrastructure business, the implementation of large-scale capital expenditures may increase the cost burden, temporarily affecting business earnings. In addition, if capital expenditures fail to produce the expected results due to changes in economic conditions, dependence on interest-bearing debt may increase. When making investments, the company has established a system in which risks and business viability are examined in advance, and decisions are made through comprehensive management judgment after deliberation by the Management Meeting, Executive Committee, and Board of Directors.

If increasingly sophisticated and advanced cyberattacks cause the suspension or malfunction of core systems or the leakage of internal information, it may result in tangible and intangible losses, such as business disruption and a decline in social credibility, affecting business earnings. There is also a risk of attacks targeting the supply chain. As countermeasures, the company implements various security measures, conducts incident response training, reviews vulnerability assessments and defensive measures, works to reduce risk in cooperation with business partners, and has established the "Hokugas Group CSIRT" to build a response system for information leakage incidents.

If a large amount of personal information, including customer information, or trade secret information is improperly leaked externally, it may result in tangible and intangible losses, such as response costs and a decline in social credibility, affecting business earnings. The company works to prevent leakage and minimize the impact in the event of an incident through the development of various information management regulations, the establishment of a group-wide information security promotion system, information security education and awareness activities, workplace inspections, and the implementation of system-based measures.

If acts inappropriate in light of laws, regulations, or the articles of incorporation, or acts contrary to corporate ethics and social norms occur, it may result in tangible and intangible losses, including direct costs as well as a decline in social credibility, affecting business earnings. The company works to improve compliance across the group through the establishment of the "Hokugas Group Ethics Policy" and "Hokugas Group Code of Conduct," compliance education and awareness activities, prompt internal sharing of information on legal amendments, strengthened cooperation with legal counsel, and internal audits.