Among the matters related to the status of operations and accounting described in the securities report, the principal risks that management recognizes as having the potential to materially affect the financial position, operating results, and cash flows of the consolidated companies are as follows.
Forward-looking statements in this section are based on judgments made by the Rengo Group as of the end of the current consolidated fiscal year (March 31, 2025).
1. Product Demand and Market Conditions
Paperboard and corrugated board products, which are the main products of the Rengo Group, are significantly affected by domestic economic conditions. Factors such as a decline in demand due to economic downturns and deterioration in market conditions caused by intensified competition may affect the Group’s operating results and financial position.
To address these risks, in addition to orders for food-related applications where stable demand is expected, the Group strives to build sound relationships with customers across a wide range of industries in order to relatively reduce the impact of demand decreases in specific sectors. At the same time, the Group enhances its competitiveness and seeks to minimize risk by advancing proposal-based sales through the creation of higher value-added packaging.
2. Raw Material and Fuel Prices
The price of recovered corrugated paper, a primary raw material of the Group, is influenced by overseas demand trends, mainly in Southeast Asia. If the supply and demand balance in the domestic market fluctuates, rising purchase prices may increase costs and affect the Group’s operating results and financial position.
The Group primarily uses city gas, LNG, and biomass as fuels. Since the prices of these fuels are affected by international commodity markets, an increase in market prices may affect the Group’s operating results and financial position.
To address these risks, the Group is working to improve unit consumption through productivity improvements and capital investment that contributes to resource and energy conservation, as well as to diversify fuel sources, in order to minimize risk.
3. Natural Disasters and Epidemics
If manufacturing bases or other facilities of the Group suffer significant damage from large-scale natural disasters such as earthquakes or typhoons, business activities may be interrupted, which could affect the Group’s operating results and financial position.
In addition, if the Group’s business activities are forced to be suspended due to the spread of large-scale infectious diseases, this may affect the Group’s operating results and financial position, etc.
To address these risks, the Group is working to establish a system that fulfills its supply responsibilities by enabling product supply from manufacturing bases located throughout Japan in the event of a business interruption at a specific site.
4. Overseas Business
The Group positions China, India, Southeast Asia, Europe, and North America as growth markets and conducts paperboard and packaging-related businesses, flexible packaging businesses, and heavy-duty packaging businesses. With respect to overseas expansion, the Group makes investment decisions after thoroughly considering risks. However, business activities overseas involve various risks, including foreign exchange fluctuation risks, natural disaster and epidemic risks, as well as economic and political risks that vary by country. The materialization of these risks may affect the Group’s operating results and financial position.
To address these risks, the Group works to minimize risk by ensuring that group companies and the responsible departments of the Company collect and share information in a timely manner so that appropriate measures can be taken at an early stage.
The overseas sales ratio of the Group for the current consolidated fiscal year is 21.7%.
5. Interest Rate Fluctuations
As of the end of the current consolidated fiscal year, the Group’s interest-bearing debt amounted to 448,529 million yen. Although the Group is making thorough efforts to reduce interest-bearing debt, it remains exposed to interest rate fluctuation risk. An increase in market interest rates may affect the Group’s operating results and financial position.
6. Stock Price Fluctuations
The Group holds shares mainly in its business partners, and with respect to marketable shares, a decline in stock prices due to various factors may affect the Group’s operating results and financial position.
In addition, pension assets of the Group are affected by stock price levels, which may cause fluctuations in retirement benefit expenses.
7. Foreign Exchange Fluctuations
In import and export transactions involving products, raw materials, and fuels, the Group may be affected by foreign exchange fluctuations, which may impact the Group’s operating results and financial position.
8. Business Restructuring
The Group is working on the selection and concentration of its businesses with the aim of increasing corporate value. Temporary losses arising in this process may affect the Group’s operating results and financial position.
9. Litigation
In the course of conducting business activities continuously in Japan and overseas, the Group is exposed to the risk of litigation related to intellectual property, environmental matters, and other issues. Depending on the content of such litigation, it may affect the Group’s operating results and financial position.
To address these risks, the Group strives to promote compliance-oriented management, including adherence to laws and regulations. It also conducts training and education programs at the employee level to enhance compliance awareness among officers and employees, thereby working to minimize risk.
10. Others
In addition to the above matters, the Group may be exposed to risks arising from unforeseen circumstances. Depending on their nature, such risks may affect the Group’s operating results and financial position.