Among matters relating to the status of business and the status of accounting, etc. described in the financial statements, etc., the following matters may have significant impacts on the decision-making of investors. Please note that forward-looking statements included in the following are based on the judgment of Daio Paper (“the Company”) as of the date of submission of the annual securities report.
1. Impacts of Changes in Demand and Market Conditions
The Daio Paper Group is engaged in the Paper and Paperboard Business, Home and Personal Care Business, and other businesses. A significant decline in demand for our mainstay products (paper and containerboard products, and household paper products) or a downturn in market conditions for such products may affect the Group’s financial position and operating results. In the Paper and Paperboard Business, we develop and revise our production system by flexibly shifting the variety of products produced at our core Mishima and Kani Plants depending on changes in demand and market by product. In the Home and Personal Care Business, a decrease in sales volume and amount due to a significant decline in demand for our home paper products or a downturn in market conditions for such products may affect the Group’s financial position and operating results. To minimize such impacts of changes in demand and market downturns in a specific product category on the entire business, we have an extensive product lineup from hygienic papers to absorbent products and carry out sales strategies spanning different products. We also accelerate the shift from price-driven sales to quality and added value-driven sales to establish a sales style resistant to changes in the market.
2. Impacts of Changes in Raw Material and Fuel Prices and Fluctuations in Foreign Exchange Rates
The Daio Paper Group purchases raw materials and fuels, such as woodchips, recovered paper, chemicals, heavy oil, and coal, both domestically and from overseas. Therefore, changes in the prices of raw materials and fuels, as well as fluctuations in foreign exchange rates for procurements of raw materials and fuels paid for in foreign currencies may affect the Group’s financial position and operating results. Fluctuations in foreign exchange rates may also affect the Group’s export sales of paper and paperboard products and household paper products and sales activities at the overseas subsidiaries. In order to reduce the impact of fluctuations in foreign exchange rates on operating results, the Group uses forward exchange contracts to hedge certain transactions. Furthermore, based on the significance of reinforcing our system to respond to changes in raw material and fuel prices and actively sharing information with our business partners, we promote procurements in line with SDGs to ensure just and fair transactions, improve quality and technology, and secure stable supply by formulating business continuity plans, while considering CSR and SDGs, together with our business partners.
3. Impacts of Overseas Businesses
The Daio Paper Group is making efforts, led by the Home and Personal Care Overseas Division, to develop business mainly in China, South Korea, Southeast Asian countries, Turkey, and Brazil as one of its growth strategies. Overseas business expansion activities may be exposed to risks of changes in the economic environment due to fluctuations in foreign exchange rates, restrictions by the local government, worsening of diplomatic relations and public sentiments, political instability, etc., which may affect the Group’s financial position and operating results. To minimize such risks, we share the latest information collected by the Group companies and departments in charge based in Japan with related parties and respond appropriately.
4. Impact of Interest Rate Changes
The Daio Paper Group has been working on reducing interest-bearing debts. However, if there is a significant increase in interest rates, it may affect the Group’s financial position and operating results. To reduce the impacts of interest rate changes on the operating results, we respond to the risk of increase in interest rates over the short term by mainly taking out fixed-rate long-term loans.
5. Impacts of Price Changes of Investment Securities
Available-for-sale securities with market value are stated by the market value method based on the market price on the closing date, etc. Depending on the share prices of investment securities on the closing date, their price changes may affect the Group’s financial position and operating results. We are reducing cross-shareholdings and thereby minimizing the impacts of price changes in terms of the total amount.
6. Impacts of Disaster
In the event of a disaster in areas where the Group’s production and logistics bases are located, the Group’s financial position and operating results may be affected due to damage to production facilities, disruption and delay of operations, suspension of logistics functions, loss of raw materials, products, and merchandise, and incurrence of restoration costs, etc. To minimize damage and recover the business early in case of a disaster, we are developing BCM (business continuity management) and improving its effectiveness.
7. Impacts of Lawsuits
(1) Risks related to legal regulations The Daio Paper Group is conducting business activities in compliance with environmental regulations on CO2 emissions to prevent global warming, etc., laws and regulations related to intellectual property rights, regulations related to product labeling, antitrust laws and other laws and regulations related to business execution, and similar laws and regulations in each country. We are strengthening our compliance framework by complying with various laws, regulations, and social norms, etc. However, changes in legal regulations may affect the Group’s financial position and operating results. (2) Risks related to lawsuits The Daio Paper Group risks lawsuits, etc., regarding its business activities, which may affect the Group’s financial position and operating results.
8. Impacts of Loan Agreements with Financial Covenants
Some of the loan agreements the Daio Paper Group has signed with multiple financial institutions contain financial covenants that set financial standards the Group is required to maintain, such as the amount of net assets reported in the consolidated balance sheet at the end of each fiscal year and ordinary profit/loss reported in the consolidated statement of income of each fiscal year. If we fail to comply with such financial covenants, we will be required to repay borrowings, which may affect the Group’s financial position and operating results.
9. Impacts of Impairment Accounting on Non-current Assets
The Daio Paper Group owns non-current assets such as property, plant and equipment and goodwill. We apply impairment accounting to these non-current assets, verify if the carrying amount of assets can be recovered through future cash flows generated from the assets, and apply the appropriate accounting treatment for assets that require the recognition of an impairment loss. If there is a decrease in estimated future cash flows due to changes in the future business environment, we will be required to recognize an additional impairment loss, which may affect the Group’s financial position and operating results.
10. Impacts of the Spread of COVID-19, etc.
The Daio Paper Group prioritizes the safety of our clients, business partners, and employees. We continue to implement infection control measures in line with guidelines issued by WHO and the health administration of each country, manage employees’ health, introduce remote work, restrict business trips and meetings, etc., in each department. If COVID-19 or other diseases spread again in the future, the global economic downturn may cause declines in sales volume, rises in prices of raw materials, difficulties in securing raw materials, disruptions in logistics, etc., which may affect the Group’s financial position and operating results.
