HIROSHIMA GAS CO.,LTD.

The majority of natural gas, the raw material for city gas, is imported from overseas, and if a supply disruption occurs due to an accident at a supplier, operational stoppage, or transportation disruption, it may affect business performance. In particular, there is a risk that LNG procurement from Russia may become difficult. The company strives to secure a stable supply through diversification of long-term suppliers, utilization of its own and other companies' LNG vessels, and procurement from the spot market.

Fluctuations in raw material prices due to changes in crude oil prices and exchange rates may affect business performance due to time lags in reflecting these changes in selling prices. In addition, if hedged items become insufficient or extinguished under hedge accounting for LNG swaps, there is a risk that fair value fluctuations will be directly reflected in profit and loss. There are also risks related to fluctuations in wholesale electricity market prices in electricity procurement, and fuel procurement risks at equity-method affiliates and Kaita Biomass Power Co., Ltd.

Against the backdrop of the adoption of the Paris Agreement and the Japanese government's declaration of carbon neutrality by 2050, if restrictions or bans on the use of fossil fuels advance, this may have a material impact on the performance of the core Gas Business and LPG Business. The company is strengthening its response through the sale of carbon-offset city gas and LP gas, technological development such as methanation, consideration and implementation of renewable energy power generation businesses, and participation in the GX League.

Gas demand fluctuates due to changes in temperature and water temperature, and there is a seasonality risk in which sales and profits are concentrated particularly in the winter period (fourth quarter). In addition, gas demand may decline over the long term due to population and household declines and the growing trend toward eating out/prepared foods and cost-saving awareness. The company is responding through expansion of summer sales via gas air conditioning, development of industrial demand, and acquisition of new customers through expansion of the supply area.

Intensifying competition among energy sources creates risks of customer attrition and declining selling prices, which may affect business performance. There is also a risk that changes in laws and regulations, such as the Gas Business Act and the Electricity Business Act, will result in compliance costs. The company addresses these risks through active sales activities to expand group market share and by quickly gathering and responding to information on legal and regulatory changes.

If customer facilities, manufacturing and supply facilities, or officers and employees are damaged by natural disasters such as earthquakes or by accidents, this may affect business performance, with particularly significant impact in the supply area along the coast of Hiroshima Prefecture. The company has taken measures such as establishing a specialized disaster prevention organization, subdividing pipeline network blocks, replacing pipes with earthquake-resistant PE pipes, and developing disaster response facilities (Disaster Prevention Center Building).

If sophisticated cyberattacks or other incidents disrupt operations, or if customers' personal information is leaked, this may affect business performance through response expenses and a decline in social credibility. The company has established a framework centered on the Information Security Committee, implemented various security measures, conducted incident response training, and established a system for setting up a disaster response headquarters in the event of a major impact.

A decline in the fair value of shares, goodwill, or other assets acquired through acquisitions, capital contributions, or alliances for business expansion may result in impairment losses, which could affect business performance. There is a risk that expected returns may not be achieved due to future changes in the business environment and competitive landscape, foreign exchange effects, and other factors. The company addresses this through due diligence and risk assessment at the time of investment decisions, as well as periodic review of valuations and monitoring of the management status of investee companies.

If acts in violation of laws and regulations occur, this may affect business performance through response expenses and a decline in social credibility. The company conducts risk-based internal audits, strengthens self-cleansing functions through the Hiroshima Gas Group Consultation and Reporting System, and carries out regular compliance training and awareness surveys, working to foster a corporate culture that does not tolerate legal violations.

Fluctuations in fund-raising interest rates due to financial market trends and other factors may affect business performance. However, since the majority of interest-bearing debt is raised at fixed interest rates, short-term interest rate fluctuation risk is limited.