Business Risks

NIPPON PAPER GROUP recognizes securing human resources as one of the key issues in our business activities. If securing the necessary personnel does not proceed as Plan , the implementation of structural reforms and profitability improvement as the basic strategy of the Medium-Term Plan 2030 may be hindered, potentially affecting our the Group performance and financial condition.

To address this risk, we promote human resource management that links employee growth to group growth, securing diverse talent, improving skills and knowledge, and enhancing engagement. Specifically, we have introduced programs to support reskilling, introduced training to help career recruiters Employee Retention their positions, and implemented selective education aimed at early selection of executive candidates at mill and business sites.

We are also developing various systems and workplace environments that support flexible work styles, focusing on building an organization where diverse talent can fully demonstrate their abilities. In fiscal year 2025, we established new “ Wellness Leave ” and “ Life Support Leave ” to support employees facing challenges during life events, and are also working to improve the working environment by implementing heat countermeasures at mill .

Furthermore, we regularly conduct employee engagement surveys and share the results with management and executives. Taking into account advice from external consultants, we continuously promote workplace communication, enhance education and training, and improve the working environment.

Additionally, to address the already evident decline in the labor force caused by the declining birthrate and aging population, we are considering automation and labor-saving at operational sites, as well as the introduction of IoT technologies in the logistics sector.

Through these initiatives, we are working to secure the right human resources and connect employee growth to the sustainable growth of the group.

We recognize the restructuring of Opal, a consolidated subsidiary of the Group group in Australia, as a very important management issue, and we will focus and select businesses to achieve early profitability. However, if these initiatives do not progress as planned, it may affect operating results and financial condition.

In the corrugated cardboard business, where demand is expected to grow, profitability is improved by concentrating management resources. On the sales side, we will leverage Opal's strength, an integrated system from base paper to processing, to promote the development and expansion of high value-added and differentiated products, provide thorough customer service such as delivery time management, and ensure the growing paper demand in Australia to expand sales. As a measure to strengthen competitiveness, we will maximize the effects of installing and updating processing machines implemented in the previous medium-term management plan, further improving the productivity of our processing business. At the same time, we will fundamentally review our organization and personnel structure, and improve the efficiency of procurement and logistics. Regarding the Maryvale plant, which has become a challenge, we aim to quickly turn EBITDA profitable by further optimizing the production system and reducing fixed costs. Other low-profitability businesses will also be streamlined, and Opal will promptly achieve operating profit profitability. /p>

One of our the Group core businesses, Graphic Paper business, continues to experience market contraction due to the advancement of digitalization and changes in work styles and lifestyles triggered by the COVID-19 pandemic. Therefore, while shifting management management resource to the Daily-Life Products Business business as a growth business, we are optimizing the production system for the Graphic Paper business, aiming to maintain operating rates and strengthen resilience to improve profit margins. However, if these considerations and initiatives do not progress as scheduled, it may affect business results and financial condition.

To strengthen the foundation of the Graphic Paper business, the Group is implementing profitability improvement measures such as stabilizing operations and continuously reducing costs, and securing appropriate prices to ensure stable supply when it is difficult to absorb increased costs such as labor and logistics expenses. We are also working to maintain and increase sales volume by developing and expanding the lineup of environmentally friendly products in collaboration with our customers.

Regarding the optimization of the production system for Graphic Paper , we will enhance competitiveness by advancing in conjunction with greenhouse gas (GHG) emission reductions, while leveraging existing resources such as human resources, raw material procurement, pulp, utilities, etc., in the Graphic Paper business, including forestry and wood-related businesses, Daily-Life Products Business , and new Biomass Material Business and other growth areas.

In this way, by having numerous response measures to reduce risk, we enhance resilience to market changes and strive to secure stable revenue.

the Group aims to grow as a “ comprehensive biomass company " that maximizes the utilization of wood resources . To respond to the decline in demand for graphic products, we have expanded into growth areas such as forestry and wood-related businesses, as well as Daily-Life Products Business businesses ( Liquid Packaging Business , household Household Paper and Healthcare Business , and Chemical Business are our main businesses. We are working to shift management resource to ) and to expand new Biomass Material Business . However, if the growth of forestry and timber-related businesses, Daily-Life Products Business , and new Biomass Material Business does not progress as Plan , it may affect operating results and financial condition.

the Group is promoting the expansion of forestry and timber-related businesses through the Green Strategy . We leverage world-class breeding, propagation, and seedling technology, a robust wood wood resources supply chain both domestically and internationally, and our own 160,000 hectares of forests both domestically and internationally to expand forest management and wood wood resources distribution businesses. Domestically, we will strengthen supply chains in collaboration with the forestry industry and timber industries, expand the handling volume of domestic timber and the elite tree elite tree seedlings production system, and ensure a stable supply of low-LCA domestic timber . Overseas, we will promote the valuation of forest resources through the advanced use of proprietary the breeding and propagation technologies , expand profits from overseas plantation business projects through high-quality clone development, and expand afforestation service businesses and handle wood Wood chips and biomass fuels.
Additionally, our the Group is promoting sales expansion through new product development, capital Investments , and collaboration with partners to Improve profitability of Daily-Life Products Business . In Liquid Packaging Business , we have established a system to provide total packaging solutions, develop and launch differentiated containers utilizing group base paper , and expand our business in the Asia-Oceania region through collaboration with business partners. In the Household Paper and Healthcare Business , we will develop high value-added products that respond to changes in social structure such as aging, expand sales in growth markets, expand exports in collaboration with global partners, and diversify and expand sales channels such as e-commerce. In the Chemical Business , we will expand profits in products for growth markets such as automotive and displays, develop new products and applications, establish production systems and capabilities to support the growth of each business, and actively expand sales in overseas markets.
Furthermore, the Group will expand its new Biomass Material Business that contributes to building a decarbonization and circulation-oriented society . We aim to generate wood resources through sustainable forest management and management, and by utilizing our proprietary technologies and open innovation, we develop new biomass materials that combine environmental value with excellent functional properties. We focus on areas such as agriculture, forestry, fisheries, food, social infrastructure and resources, lifestyle, and advanced functional materials, and advance our business accordingly.
To promptly meet market demands such as environmentally friendly , it is essential to have sufficient technical capabilities, sales power, and a strong network. Our the Company is actively investing in growth “ Investments reallocating personnel to create synergies with existing businesses, while also working to build networks among industry, government, academia, and finance to promote open innovation. ” By providing these research results to the market as products and services, we aim to enhance resilience to market changes.
the Group is expanding its growth areas such as forestry and timber-related businesses, Daily-Life Products Business , and new Biomass Material Business , aiming to reduce GHG Emissions across the entire supply chain, promote resource circulation and resource autonomy through recycling, and promote forestry industry through the utilization of domestic forests. By realizing these efforts, we aim to contribute to building a sustainable society and pursue the sustainable growth of the entire group.

The Group , whose main business is energy-intensive Paper and pulp, positions comprehensive responses to climate change as a key issue in realizing our Group Mission , and is actively working to reduce GHG Emissions with the goal of achieving carbon neutrality by 2050. In Japan, as the introduction of the emissions trading system and the acceleration of decarbonization efforts, if the Group delays in responding, regulatory risks such as strengthened carbon pricing policies, financial risks such as credit purchase costs and increased Investments in GHG Emissions reductions may arise, and further impact on customers and Investments . There is a possibility of facing reputation risks due to declining trust from homes. Furthermore, due to “ physical risks" such as severe extreme weather  and depletion of water resources, there are concerns about the ” suspension of operations at our the Group production site , procurement difficulties and soaring prices of wood Wood chips , the raw material, and supply chain disruptions. If these climate change risks materialize, they could have a significant impact on our the Group business performance and financial condition.
the Group appropriately assesses the financial impacts related to these risks and conducts highly transparent disclosures based on the framework recommended by the TCFD (Task Force on Climate-related Financial Disclosures). To reduce transition risk , we have set a goal to reduce GHG Emissions (the combined Scope 1 and 2 of Scope 1 and 2) by 54% compared to fiscal 2013 by fiscal year 2030, and are advancing energy-saving measures through the introduction of high-efficiency equipment and optimization of manufacturing processes, as well as the transition to renewable and waste-to-energy sources. Furthermore, to further reduce emissions, we will recovery boiler high-efficiency black black liquor recovery boiler at the Ishinomaki mill during fiscal 2028, and simultaneously shut down one existing coal boiler to further accelerate GHG Emissions reductions.
Regarding climate change risks, it is necessary to formulate and implement transition Plan with a medium- to long-term perspective. the Group Based on the development trends of next-generation fuel technologies such as hydrogen and ammonia and the transition Plan assuming social implementation timelines, our group has newly formulated a medium-term target to reduce GHG Emissions (the sum of Scope 1 and 2) by 60% by 2035 and 65% by 2040 compared to fiscal year 2013, and GHG Emissions We are steadily implementing reduction measures.
Furthermore, our the Group is working to reduce GHG emissions throughout the supply chain by strengthening collaboration not only with business partners but also with stakeholders such as industry peers and companies from different industries, and through collaborative efforts such as round transportation, modal shifting, and shortening transport distances. Furthermore, we are actively engaged in initiatives such as forest absorption through proper forest management and carbon recycling, promoting GHG Emissions reductions from multiple angles and strengthening our efforts to achieve carbon neutrality by 2050.
For the Emissions Trading System, which will be fully introduced from fiscal 2026, we will accelerate the reduction of fossil fuel usage such as coal, while also establishing carbon management systems such as monitoring the carbon credit market and procurement systems. By appropriately responding to this system, we will manage and mitigate financial impact risks.
Addressing climate change issues goes beyond risk management but also leads to the creation of new business opportunities. the Group can produce low-GHG biomass materials with high environmental value through Investments in reducing GHG Emissions . the Group aims to achieve both corporate growth and the creation of a sustainable society by further strengthening collaboration with a wide range of stakeholders and pioneering the introduction of diverse biomass materials into the green product market.

the Group procures raw raw materials and fuel such as Wood chips , Waste Paper , heavy oil, coal, and pharmaceuticals, and manufactures and sells these products. raw materials and fuel prices are greatly influenced by domestic and international market conditions, and with the growing trend toward phasing away from fossil fuels and the decline in Graphic Paper production, raw materials and fuel There is a possibility that procurement instability and price fluctuations caused by supplier downsizing or withdrawals may become apparent, which could affect our operating results and financial condition. Furthermore, the shortage of logistics workers (cargo handlers, dockworkers, transport capacity), delays in global supply chains due to rising geopolitical tensions, and decarbonization policies in response to climate change, driven by rising raw raw materials and fuel prices, are Forecast to continue rising transportation costs. This may further impact our operating results and financial condition.
As main countermeasures, we are implementing measures such as setting and operating pre-orders for some raw materials and fuel products to hedge risks. In particular Wood chips chips for Paper , we hold 160,000 hectares of forest resources domestically and internationally, and in addition to domestic and international Wood chips resources, We strengthen trust based on long-term business relationships with suppliers and stabilize raw material procurement and purchase prices by developing and adopting inexpensive resources at close range. To ensure stable procurement, we are strengthening good relationships with suppliers and logistics companies, and are also advancing financial status by strengthening proper inventory management through enhanced management of appropriate inventory through procurement from multiple regions and sources including overseas, switching to substitutes, enhancing cross-group collaboration for flexibility, expanding procurement network , and reviewing inventory levels. After taking these measures, we will pass on any unabsorbed increase in transportation costs to an appropriate level.
Regarding logistics issues, we are working to balance compliance with regulations and cost increase curbs through cross-group meetings in product sales and raw materials and fuel procurement. We collaborate with our business partners to implement measures such as changing Plan delivery times and transportation systems, improving loading rates, and establishing new inventory bases near consumer areas. To reduce truck cargo handling waiting times, each mill has introduced truck acceptance reservation systems to shorten waiting times. Furthermore, by realizing joint transportation with other companies, we are working to reduce GHG Emissions and promote logistics DX initiatives to address labor shortages.

In regions where our the Group production and sales bases are located, large-scale natural disasters such as earthquakes, typhoons, floods, wildfires, as well as disasters like droughts and extreme heat, can significantly impact business continuity. Production halts, increased costs for equipment restoration, and damage to products and raw materials may occur, potentially affecting business results and financial condition. Although we have insurance against natural disasters, it may not be sufficient to cover any liability our company may bear.
Therefore, based on the Crisis Response Regulations , our the Group promptly establishes a Crisis Response Headquarters in emergencies to confirm the safety of employees and their families, assess disaster status, and implement measures to ensure continued supply. Additionally, to respond to emergencies, we have strengthened BCM ( Business Continuity Management ), considering the establishment of supply systems across multiple mill , and regularly conducting evacuation drills and safety confirmation drills based on disaster scenarios.
Through these initiatives, we are able to respond flexibly to unexpected situations, build and maintain systems that protect employee safety, and maintain business continuity. Going forward, we will continue to respond to changing social conditions through ongoing review and strengthening of risk countermeasures.

The Group conducts business activities based on Plan production, taking into account market demand and the capacity of existing facilities. However, if the operating rate of production equipment declines due to equipment failures, fires, or accidents caused by natural disasters, product supply capacity may be insufficient, potentially affecting business performance and financial condition. Furthermore, if such equipment malfunctions or accidents occur, there is a possibility that employees may be involved in occupational accidents or negatively impact the surrounding environment. To address these risks, we conduct regular equipment inspections and maintenance, implement anti-aging measures including planned updates at vulnerable areas, consider building supply systems across multiple mill , and optimize inventory. Plan

The Group is subject to claims for damages based on product liability for its products. Currently, we have not received any serious claims for damages, but we may face such claims in the future. Although we have product liability insurance ( product liability insurance ), it may not be sufficient to cover any liability our the Group may bear. Our the Group has established a Group Product Risk Committee to supervise and support product safety risks at each group company. Additionally, major manufacturing companies have each established their own Product Risk Committees and are working to develop product risk management regulations to prevent product safety incidents.

The Group is subject to environmental laws and regulations in its business activities. Changes or revisions to these regulations may restrict production activities or incur costs for new measures, which could affect business performance and financial condition.
Furthermore, if legal limits are exceeded or the environment around mill or business sites is affected, there is a risk of business suspension due to administrative guidance or loss of trust.
To address these risks, we regularly monitor the status of environmental legal amendments, collect information from outside the company, monitor daily operations, and properly maintain and manage equipment, thereby complying with environmental laws and establishing a system that minimizes negative impacts on the surrounding mill of factories and business sites.

The Group operates the Paper and Paperboard Business , Daily-Life Products Business , Energy Business , Wood Products and Construction Related Business . and other broad fields, related laws and regulations are constantly changing, creating new compliance challenges. In particular, the risks of compliance violations have become even more complex in response to changes in social conditions, such as the advancement of digitalization, accelerated globalization, and growing interest in environmental protection and respect for human rights.
As a countermeasure, our the Group conducts compliance training in response to changes in social conditions and conducts awareness surveys on compliance to raise employees' awareness of compliance. Additionally, the “ NIPPON PAPER GROUP Helpline ” ' allows you to report and consult directly outside the daily instruction system regarding acts that may violate laws, social norms, corporate ethics, codes of conduct, codes of conduct, or internal rules of group companies. We have established such measures and conduct fact-finding investigations on matters with concerns about compliance violations. In light of the importance of the incident, we implement corrective and recurrence prevention measures such as internal disciplinary actions, warnings and guidance, and education to raise employee awareness.
Furthermore, for tasks that are difficult to carry out on business partners or our own company, our the Group conducts business activities with the cooperation of various outsourced contractors , so we place great importance on fair and sound business practices contractors with business partners and subcontractors. In addition to complying with the Antimonopoly Act and the Act on the Improvement of Small and Medium Contract Transactions (Takui Act), we aim for fair trade practices that reflect changes in social values. However, if violations occur, it is Forecast to pose significant management risks such as litigation risks and loss of social trust.
To address these issues, based on the “ Partnership Building Declaration ” we comply with desirable business practices between contractors and small and medium-sized contractors, and actively work to correct business and business practices that hinder partnership building with business partners. Additionally, in November 2023, we announced “ Based on ” Guidelines on Price Negotiations for Proper Transfer of Labor Costs," we are advancing risk assessments and implementing countermeasures across the entire group.
Through these efforts, we aim to respond flexibly to changes in social conditions and minimize the risk of compliance violations.

The Group strives to operate with safety as the top priority at all business sites, but the occurrence of occupational accidents poses a serious risk to workers' health and loss of life. Depending on the nature of the disaster, there is a risk of losing valuable human resources, having to halt production facilities to ensure safety and implementing recurrence prevention measures, and even risks being questioned about the company's management responsibilities and losing credibility. To address these risks, our company operates our own occupational safety and health management system to prevent occupational accidents, incorporating concrete, continuous, and voluntary activities into safety and health Plan at each business site, striving to improve safety and health standards by preventing occupational accidents, promoting worker health, and creating a comfortable workplace environment. Additionally, we conduct regular inspections and maintenance of production equipment, as well as anti-aging work including Plan renewals of vulnerable areas.
We share these initiatives with each the Group and promote the prevention of occupational accidents, striving to ensure a safe workplace environment across the entire group.

Due to the spread of social media and other platforms, our the Group faces an increasing risk of criticism and defamation on the internet. This could lead to serious reputation risks such as the loss of the corporate brand, suspension of transactions, and employee turnover, which could affect business performance and financial condition.
To address this risk, we regularly monitor and collect information from our the Group on the internet, including social media, and have established a system to respond quickly and appropriately when unforeseen circumstances arise.

The Group holds marketable shares primarily in business partners and affiliated companies. Therefore, the Group is exposed to the risk of share price fluctuations that could affect its business performance, financial position, and other aspects. With this in mind, the Group conducts regular monitoring of the shares it holds, so that it can detect whether the shares could have a significant impact on its financial position.

The Group is exposed to the risk of interest rate fluctuations with respect to interest-bearing debt and other items. Such fluctuations could affect the business performance, financial position, and other aspects of the Group. The Company maintains the ratio of fixed interest rate loans to long-term debt above a certain level. Also, the Company mitigates the risk of interest rate fluctuations through the use of financial instruments such as interest rate swaps, in addition to spreading out repayment periods and diversifying financing methods, among other measures.

The Group takes care to limit its credit risk through measures such as continuously evaluating the financial and related information of its business partners in accordance with credit management rules and establishing credit limits accordingly, but any event that disrupts the collection of receivables, such as a deterioration in the financial condition or bankruptcy of customers, could affect the business performance, financial position, and other aspects of the Group.

The 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 flow generated through these assets may lead to an incurrence of an impairment loss and affect the business performance, financial position, and other aspects of the Group.

The Group's retirement benefit expenses and obligation are calculated based on actuarial assumptions such as the rate of return and the discount rate on pension assets. However, any circumstances requiring a change in the actuarial assumptions or an impairment to pension assets resulting from stagnation of the stock market and other factors may affect the business performance, financial position, and other aspects of the Group. With this in mind, the Group has diversified its pension plan assets into multiple asset classes and management styles with different risk and return characteristics based on the advice of external consultants. By regularly conducting an analysis of the risk and return of the entire pension plan assets, the Group conducts an evaluation of the effectiveness of the diversification effect.

The Group records deferred tax assets after it judges the recoverability of deductible temporary differences and operating loss carryforwards based on an estimation of future taxable income. However, changes in the operating environment and other factors that lead to a decline in taxable income, or changes in the tax regulations and other factors that lead to a revision in recoverability, may cause a reversal of deferred tax assets. Such a reversal could affect the business performance, financial position, and other aspects of the Group.