Management PolicyBusiness Risks

The Group has identified the following factors as risks that could affect Nippon Paper Group's business performance and financial position:

(1)Product Demand and Market Conditions
The Nippon Paper Group engages in its mainstay Paper and Paperboard Business, Daily-life Products Business, Energy Business, and Wood Products and Construction Related Business. The Group is at risk of fluctuations in demand for its products and product prices in the context of economic conditions and other factors. Such fluctuations could affect the Group's business performance and financial position.
(2)Manufacturing Conditions
The Nippon Paper Group's production activity is based on the estimated demand and production capacity of existing facilities. The Group carries out regular preventive inspections and other maintenance checks, but is at risk of a reduction in supply capability due to fires, accidents, and other problems occurring at facilities, and interruptions in procurement, as well as the delivery of raw materials and fuel. Such fluctuations could affect the Group's business performance and financial position.
(3) Raw Material and Fuel Prices
The Nippon Paper Group engages in the manufacture and sale of products through purchases of raw materials and fuel such as wood chips, waste paper, heavy oil, coal, and chemicals. The Group is thus at risk of input price fluctuations in domestic and international markets. Such fluctuations could affect the Group's business performance and financial position.
(4) Litigation
The Nippon Paper Group takes the utmost care to comply with laws and regulations in the course of doing business, but is nonetheless at risk of litigation associated with criminal or civil affairs, taxation, antitrust law, product liability law, intellectual property rights, and environmental and labor issues. As a result, such litigation could affect the Group's business performance and financial position.
(5) Product Liability
While it has hitherto not been subject to any significant amount of compensation for product liability, the Nippon Paper Group may be liable for the payment of compensation for damages in the future. While the Group is covered under product-liability insurance, it may not be adequate to cover the amount of compensation for which the Group may be held liable.
(6)Environment-Related Legal Risk
The Group is obligated to apply environment-related regulations in the course of doing business. Revisions and amendments to such regulations could limit production activities and result in additional costs, affecting the Group's operating performance and financial condition.
(7) Foreign Exchange
The Nippon Paper Group is at risk of foreign exchange rate fluctuations associated with import and export transactions. Because the Group's imports of raw materials and fuel, such as wood chips, waste paper, heavy oil, coal, and chemicals, exceed its product exports, yen depreciation against the U.S. dollar has a negative impact on business performance. The Group hedges against this risk by means such as forward contracts in order to mitigate the impact of foreign exchange rate fluctuations on its business performance.
(8) Stock Prices
The Nippon Paper Group holds marketable shares in partner and affiliated companies and is thus at risk of share price fluctuations that could affect the Group's business performance and financial position.
(9) Interest Rates
The Nippon Paper Group is at risk of interest rate fluctuations affecting its interest expense regarding interest-bearing debt, etc. Such fluctuations could affect the Group's business performance and financial position.
(10) Credit Risk
The Nippon Paper Group takes care to limit its credit risk, but tardy or uncollectible receivables due to deterioration in the financial condition or bankruptcy of customers could affect the Group's business performance and financial position.
(11) Impairment of Fixed Assets
The Nippon Paper Group owns fixed assets such as production facilities and land. Changes in the operating environment and other factors that result in a significant decline in future cash flows generated through these assets may lead to the incurrence of an impairment loss and affect the Group's business performance and financial position.
(12) Retirement Benefit Obligation
The Nippon Paper Group's net defined benefit costs and liabilities are calculated based on mathematical assumptions such as the rate of return and the discount rate on pension assets. However, any circumstances requiring a change in the use of the actuarial method or an impairment to pension assets resulting from stagnation of the stock market and other factors may affect the business performance and financial position of the Group.
(13) Reversal of Deferred Tax Assets
The Nippon Paper Group deems the future deductible amount and operating loss carryforwards as recoverable upon estimation of future taxable income and records them as deferred tax assets. However, changes in the operating environment and other factors that lead to a ecline in taxable income, or a change in the tax regulations and other factors that lead to a revision in recoverability, may cause a reversal of deferred tax assets and affect the business performance and financial position of the Group.
(14) Human Resource Recruitment and Labor-Related
The Nippon Paper Group considers its human resource strategy to be a key element of its business activities, and understands the importance of securing and developing the right human resources for the growth of its business going forward. The Group undertakes efforts to secure the most optimal and efficient workforce by actively recruiting and developing diverse employees and establishing a workplace environment that promotes flexible and diverse work styles. However, the inability to secure appropriate human resources may result in restrictions to the Group's business operations, which may affect the business performance and financial position of the Group. While the Group conducts measures to minimize labor-related risks, such as through appropriate labor management according to laws and regulations, the occurrence of labor-related compliance violations (employment issues, harassment, human rights infringements, etc.) may lead to lawsuits or impair society's trust in the Nippon Paper Group, and affect the business performance and financial position of the Group.
(15) Natural Disasters and Infectious Diseases
The occurrence of an earthquake or large-scale natural disaster and the outbreak of an infectious disease in the vicinity of the Nippon Paper Group's production and sales bases may impact its production, sales, and other business activities. This may lead to the loss of business opportunities due to a production stoppage, additional costs to recommence operations, and/or damage to products and raw materials, which may affect the business performance and financial position of the Group.
(16) Information Systems
The Nippon Paper Group implements rigorous security measures for its information systems and has set forth its rules concerning the handling of personal information, and made it known to its executives, employees, and business partners as part of its efforts to strengthen its management structure. However, information leakage due to unauthorized access to computers and/or the breach of data due to criminal acts may lead to the payment of compensation for damages and the impairment of the trust placed in the Nippon Paper Group by society, thereby affecting the business performance and financial position of the Group.
(17) Overseas Business
The Nippon Paper Group manufactures pulp and paper and operates forestry plantations and other businesses in North America, South America, Scandinavia, China, Southeast Asia, Australia, and other overseas locations. The development of business overseas entails a number of risks, including changes to laws and regulations by local governments, labor disputes, and the impact of political uncertainty on economic activities. While the Group takes preventive measures, such as through the sharing of information with external law firms, the occurrence of such risks may affect the business performance and financial position of the Group.
(18) M&As and Business Alliances
The Nippon Paper Group engages in M&As and business alliances with the aim of realizing sustainable growth by creating new business opportunities. The Group conducts a thorough examination of the business strategies and synergistic effects before engaging in such transactions, and works to maximize its results after concluding such agreements. However, changes in the operating environment and other factors may lead to the underachievement of results, and in turn affect the business performance and financial position of the Group.
(19) Other Risks Associated with Changes in Business Conditions, etc.
The Nippon Paper Group is subject to the risk of changes in business and economic conditions and other similar circumstances arising from contingencies, which could affect the Group's business performance and financial position.