SHIZUOKA GAS CO.,LTD.

In LNG procurement, there is a risk that raw material procurement costs may fluctuate due to changes in contract terms or price structures at the time of contract renewal. In addition, the slide time lag in the raw material cost adjustment system may affect period earnings. As countermeasures, the Group is working on optimizing its procurement portfolio and hedging against price risk and foreign exchange risk.

If new environmental regulations or systems are introduced, or existing systems are strengthened, in line with the progress of the carbon neutrality transition, additional response costs may arise, potentially affecting business results. As countermeasures, the Group is strengthening its response to carbon neutrality demand through the supply of carbon-offset city gas and J-Credits, development of renewable energy power sources, and utilization of non-fossil value trading, among other measures.

In addition to the moves of competitors in the same industry, competition is intensifying due to new entrants from other industries and market contraction, creating a risk that a decrease in the number of customers and the progress of rate competition and service diversification may affect earnings. As countermeasures, based on the foundation of safety, security, and stable supply, the Group is promoting new rate menus and lifestyle services that contribute to improving QOL, and strengthening trust relationships with customers and local communities by leveraging both real and digital touchpoints.

Large-scale natural disasters such as earthquakes, typhoons, and tsunamis could cause widespread damage to gas manufacturing and supply facilities and power generation facilities, potentially halting gas manufacturing, supply, and power generation, and resulting in significant recovery costs. As countermeasures, the Group is promoting seismic reinforcement and resilience enhancement of gas manufacturing and supply facilities and power generation facilities, developing and training for BCP, and establishing emergency response systems, among other measures.

Since all LNG is procured from overseas, changes in the political and economic conditions of exporting countries, malfunctions at shipping terminals, and weather deterioration or accidents during transportation could disrupt raw material procurement, potentially affecting gas supply and gas sales. As countermeasures, the Group strives to ensure stable raw material procurement through diversification of supply sources, flexible shipping plans and utilization of trading, optimization of contract terms, and continuous monitoring of supply-demand and market conditions.

As the Group is strongly affected by various laws and regulations, including the Gas Business Act and the Electricity Business Act, as well as national energy policy, any amendments or changes to these could affect business operations and earnings. As countermeasures, the Group continuously monitors and gathers information on trends in regulatory changes, and works to reflect its views in system design and policy discussions through industry associations, among other channels.

While the Group is promoting investments and mergers and acquisitions (M&A) both domestically and internationally, changes in economic conditions, shifts in the market environment, deviations from business plans, and delays in PMI (post-merger integration), among other factors, could prevent investment recovery from proceeding as planned, potentially resulting in impairment losses. As countermeasures, the Group ensures the appropriateness of investment decisions through scrutiny and validation of investment projects by the Investment Committee and deliberation by the Board of Directors and other bodies, and strengthens monitoring and ex-post verification after investment execution.

The Group operates core IT systems related to gas manufacturing and supply, power generation, customer reception, and billing operations, and if troubles such as system outages, malfunctions, or cyber-attacks occur, they could affect business operations and performance. As countermeasures, the Group is strengthening cybersecurity measures through the protection of important data and enhancement of recovery capability, reinforcement of system resilience, various security measures, and incident response training, among other initiatives.

As the Group handles a large amount of customer information in the course of its business, if customer information is leaked to outside parties, costs for investigating the leak and providing compensation could arise, in addition to damage to social credibility and brand image, which could affect business operations and financial condition. As countermeasures, the Group is working on developing regulations related to personal information protection and information management, thoroughly educating employees on information management, strengthening measures against cyber-attacks, and continuously conducting incident response training, among other initiatives.

Demand for city gas, the Group's core business, is highly susceptible to temperature trends, and if abnormal weather such as an extremely hot summer or a mild winter occurs, gas demand could fluctuate significantly, potentially affecting business performance. As countermeasures, the Group is stabilizing demand by cultivating large-lot customers who are less affected by temperature fluctuations, and diversifying its earnings base by expanding non-gas businesses.