SENKO HOLDINGS

   

Risk Management System

Risk management

The SENKO Group's key management issues include ensuring stable earnings and establishing a sound management base by managing all risks associated with the execution of operations in an appropriate manner. The Board of Directors serves as a governance structure by providing oversight to ensure that directors carry out their responsibilities with regard to risk management in an effective and efficient manner.

Business risks

Risks related to the condition of the Group's businesses, accounting, and other operations that could have a material impact on the judgment of investors are described below. Forward-looking statements are based on the judgment of the SENKO Group (the Company, its consolidated subsidiaries, and its equity-method affiliates) as of March 31, 2023.

1. Financial and accounting risk

(1) Exchange rate risk
Fluctuations in exchange rates resulting in changes in the yen value of foreign currency-denominated assets and liabilities and significant changes in the cost of products for which the Group purchases products overseas that are denominated in foreign currencies could have an impact on the Group's performance, and on the performance of overseas Group companies as reported in yen.
(2) Retirement benefit liabilities
Employee retirement benefit costs and liabilities for some Group companies are calculated in line with assumptions that are set based on mathematical calculations such as the discount rate or on the long-term expected rate of return for pension assets. Because discrepancies resulting from differences between these assumptions and actual results are treated as actuarial gains or losses and amortized uniformly into the future, such discrepancies could impact retirement benefit liabilities and expenses. In addition, the company has established a retirement benefit trust. A decline in its share price could have an adverse impact on its performance and financial standing, for example by causing the market value of pension assets to fall or unrecognized actual gains and losses and future amortization costs to rise.
(3) Increases in fund procurement costs
The Group procures funds by such means as borrowing from financial institutions and issuing corporate bonds. Developments such as abrupt fluctuations in market interest rates, confusion in financial markets, or a significant downgrade in the company's credit rating by a rating organization could cause the company's fund procurement costs to rise, which could in turn have a significant and adverse impact on its business performance and financial standing.
To address this risk, we reduce fund procurement costs by maintaining a favorable credit rating while working to reduce interest rate fluctuation risk by diversifying the fund procurement methods we rely on, ensuring payment deadlines are not concentrated unduly, and fixing interest rates.
(4) Asset disposal loss and impairment loss
The Group owns numerous logistics facilities in Japan and abroad. Although we carefully study capital investments and long-term lease contracts from a long-term perspective, for example to calculate investment benefits and expected cash flow collection, factors including future economic trends and customer company trends could have an adverse impact on our performance and financial standing, for example by requiring earlier disposal or repayment than was initially planned or by triggering temporary losses or impairment losses.
(5) M&As, capital alliances, and impairment loss
When expanding the scale of existing businesses, or entering new business fields, the SENKO Group concludes M&As and enters into capital alliances, etc., as part of its business strategy. However, initially-expected benefits may fail to materialize due to the effects of factors including significant changes in the market environment following the acquisition, legal regulations, or unanticipated increases in costs. In addition, in the event of a problem that went undetected during preliminary investigations, for example due to the discovery of a contingent liability or un-reviewed liability, the Group's financial position could be adversely affected.

2. Compliance risk

(1) Violations of laws or internal rules by officers
Businesses operated by the SENKO Group are subject to legal and regulatory regimes in their respective areas of operations. Although the Group considers compliance through sustainability management to be a top priority and works to ensure it, potential inducement of violations due to compliance failures poses the risk of an impact on its performance, for example in the form of loss of customers due to factors such as reputational risk, including from harmful rumors, or a decline in hiring competitiveness.

3. Labor risk

(1) Human rights risk
The SENKO Group has established the SENKO Group Human Rights Policy, which requires its activities to respect human rights by prohibiting inhumane treatment such as discrimination, forced labor, and child labor as well as various forms of harassment in every aspect of its business activities. Anticipated risks such as negative impacts of the Group's business activities on various stakeholders such as customers, business partners, and local communities or an inability to address human rights issues in the Group's supply chains in an appropriate manner could impede business continuity, for example by harming the Group's brand or resulting in a cessation of transactions with customers.
(2) Labor management risk
Reflecting its commitment to “achieving an eventual goal of zero workplace accidents” based on the spirit of respect and by prioritizing safety over everything else, the SENKO Group has put in place a safe workplace environment, and it has implemented a safety management system that includes safety performance evaluations and use of the PDCA cycle to resolve issues. Insufficiently rigorous occupational health and safety or labor management could pose the risk of a serious accident, impacting the Group's performance.

4. Information security risk

(1) Information systems and information security
The Group leverages IT technology to manage customer freight information and for control systems for warehouses. The performance of the Group could be affected if these systems are shut down due to a natural disaster, computer virus, or computer hacking.
(2) Management of customer information
The Group handles customer information when providing logistics services and has worked hard on information management through in-house education. However, the Group's performance could be affected by claims for compensation for damages if there is an external leak of information or loss of data.

5. Operational risk

(1) Laws and regulations
The Group provides a wide range of services as part of Logistics, Trading & Commerce, Living Support, Business Support, and Products businesses. These businesses must comply with a variety of laws and regulations.
Future developments such as the strengthening of laws or regulations, or the application of new laws or regulations, could impose additional costs as the Group seeks to comply with them, and the need to make changes to the manner in which it operates its businesses could affect the Group's financial position and business performance.
(2) Occurrence of a serious accident
In case a serious vehicle or freight accident occurs, the performance of the Group could be affected by a loss in customer and public confidence, suspension of vehicle use, administrative penalties such as business suspension, etc.
(3) Sharp increases in the price of crude oil
Higher prices for light oil due to a sharp increase in the price of crude oil will push up transportation costs. The performance of the Group, where truck transportation is the mainstay business, could be affected in the future by price trends.
(4) Risks related to hiring of personnel
Labor-intensive operations account for a large proportion of the businesses operated by the Group, making it essential to hire, retain, and appropriately assign high-quality human resources to serve in its workforce and to ensure that they can strive towards self-realization in an energetic and engaged manner while achieving personal growth.
Shrinkage of Japan's domestic working population due to its declining birthrate and rising average age that results in tightness in the labor market could impact the Group's performance by preventing SENKO's operating companies and their corporate partners from being able to sufficiently hire and retain human resources, as could significant increases in costs due to intensifying competition for human resources.

6. Business continuity risk due to natural disasters, infectious diseases, etc.

(1) Occurrence of a disaster, power outage, etc.
Disasters such as heavy rains, snowstorms, typhoons, and earthquakes; power outages; and other events beyond the Group's control could impact the Group's performance if operations are halted due to interruptions in transport routes or power supplies, if the Group incurs high costs to restore operations of equipment at its facilities, or if reductions in business volume with disaster-affected customers continue over the medium or long term.
(2) Risk related to climate change
Physical (acute) risk caused by extreme weather such as flooding due to heavy rains or typhoons that are likely the result of climate change could have an impact on the Group's performance if its facilities or equipment sustain related damage as described in “Occurrence of a disaster, power outage, etc.” above. In addition, transition risk characterized by physical (chronic) risk, abrupt increases in fuel prices, or the introduction policies, laws, or regulations to address issues such as decarbonization could impact the Group's performance.
A summary of principal risks and opportunities related to climate change compiled based on the TCFD framework can be found on the following page: Disclosing Information in Accordance with TCFD
(3) Increasing prevalence of infectious diseases
A pandemic could affect the Group's performance due to the impact of temporary closures of business sites or government-imposed lockdowns.

7. Overseas risk

(1) Overseas business growth
To continue growing into the future, the SENKO Group is working to expand its businesses overseas. The Group's business expansion, performance, and growth outlook could be significantly affected by social disturbances in the regions where it operates. These disturbances could be due to changes in the economic situation, recessions, fluctuations in foreign exchange rates, changes in politics or laws and regulations, natural disasters, or outbreaks of terrorism, war or disease.

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