Description of material risks

In its Oil and Fat business and Processed Food and Material business, The Nisshin OilliO Group imports all of its raw materials from overseas, including soybeans, canola, and cacao. It is also extending its overseas operations in locations such as Malaysia, elsewhere in Southeast Asia, and in Europe. The Nisshin OilliO Group accordingly assumes the risk of exchange rate volatility particularly associated with raw material costs, sales in foreign currencies, and borrowings in foreign currencies. Such exchange rate volatility could potentially affect its earnings results and financial position.
As for raw materials, in addition to the risk of market volatility with respect to international prices of raw materials, we also assume the risk of volatility in transportation costs and other such expenditures potentially resulting from soaring crude oil prices. Raw material prices could potentially affect the Group’s earnings results and financial position given that they constitute a key component of its cost structure.

Addressing such risks

The Nisshin OilliO Group addresses such risks by flexibly arranging forward exchange contracts and hedging transactions enlisting futures markets, in accordance with its regulations on handling trading of derivatives and commodity futures. We also share and monitor information on a quarterly basis in meetings of the Company’s Executive Board.

Description of material risks

Sales of the Oil and Fat business are especially prone to changes in product market conditions in Japan and abroad. Domestic selling prices of oils, fats and oilseed meal products generally hinge on international market conditions. In addition, trends with respect to product imports from overseas could potentially affect sales prices in Japan. As such, a scenario where such changes arise with respect to market conditions in Japan and abroad could affect the Group’s earnings results and financial position.

Addressing such risks

The Nisshin OilliO Group strives to sell products at appropriate prices commensurate with the costs, despite sometimes encountering time lags with respect to costs and pricing. The Group also seeks to reduce such risk by taking steps to increase sales of high-value-added products, thereby gradually increasing its proportion of sales of such products.
The Company’s Executive Board monitors progress achieved under management plans on a monthly basis and accordingly takes action as necessary, including addressing changes in customer needs.

Description of material risks

In addition to the threat of earthquakes and tsunamis, we are well aware that risks involving recent events such as storm and flood damage due to extreme weather have been increasing from one year to the next. Any materialization of such risk could have an impact on key points along the supply chain, particularly if such a scenario were to adversely affect manufacturing equipment, distribution equipment, infrastructure, or employee safety, which in turn could adversely affect the Group’s earnings results, social responsibility, and financial position.
In addition, a scenario involving a fire, explosion, or other such major catastrophe caused by the Group could result in diminished credibility of the Group.

Addressing such risks

The Nisshin OilliO Group regularly holds emergency preparedness training, having adopted a safety confirmation system designed to check on safety of employees and others in the event of an earthquake, tsunami, or other such disaster. We have established a business continuity plan (BCP) drawing on experience with respect to the Great East Japan Earthquake, and we review the BCP as necessary. At the same time, we are proceeding with necessary efforts involving seismic reinforcement of structures with priority placed on our main facilities at manufacturing sites.
We also regularly conduct comprehensive disaster readiness drills envisioning the possibility of fire, explosion and other such scenarios, while also taking action that involves addressing the key issue of disaster mitigation, which partially involves reducing the risk of storm and flood damage caused by extreme weather events in recent years.
We will persist in researching matters involving the risk of damage beyond the scope of such measures, with the aim of minimizing potential damage to the extent possible and striving to reduce effects of such scenarios on the Group’s earnings results and financial position.

Description of material risks

Growing social concern when it comes to food quality and safety has given rise to the need for more stringent systems of quality control. Accordingly, the Group’s earnings results, financial position and credibility could be adversely affected should a situation arise involving quality concerns.

Addressing such risks

We have been developing more stringent systems of quality control. For instance, the Quality Management Committee, which serves as an advisory body to the Executive Board, deliberates on and checks the implementation of policies and measures involving quality assurance. Meanwhile, our major factories in Japan have acquired ISO 9001 certification (International Organization for Standardization) and FSSC 22000 certification (Food Safety System Certification), which serves as an international standard for food safety management. Also, some of our manufacturing processes have acquired GMP certification (Good Management Practices).

Description of material risks

Among the raw materials required for The Nisshin OilliO Group’s products, the Oil and Fat business and Processed Food and Material business in particular must procure primary raw materials such as soybeans, canola, and cacao, along with raw oils and fats such as olive oil and palm oil. Accordingly, deterioration of the environment for procuring such raw materials causing an inability to procure sufficient amounts of raw materials or secure raw materials that meet the Group’s requirements for quality and safety could result in tremendous risks to stable product supply, thereby affecting the Group’s financial position and credibility.
Accordingly, we need to closely monitor developments, particularly given a situation where year after year there has been mounting uncertainty regarding the balance of food supply and demand. This situation is attributable to factors such as world population growth, frequent extreme weather events in various locations, and the risk of supply instability brought about by government policies imposed in nations that produce raw materials.

Addressing such risks

The Nisshin OilliO Group has been procuring raw materials from multiple countries in collaboration with trading companies, with the aim of making it possible to cope with changes in the raw materials procurement environment brought about by factors that include the effects of droughts and other such weather conditions and government policies imposed by countries of origin. We are also striving to achieve consistent procurement of raw oils and fats such as olive oil by developing multiple channels of procurement from countries of origin and suppliers.
Moreover, with the aim of procuring safe raw materials, we have been conducting safety assessments involving analysis and on-site visits when purchasing raw materials from new production regions and suppliers, regularly conducting safety assessments with respect to raw materials purchased through existing channels, and striving to secure safe and reliable raw materials by collecting information on their origins.

Description of material risks

Contemporary issues attracting attention include measures to address global warming, environmental and human rights issues related to suppliers, and marine plastic waste. Accordingly, an inability to address such challenges could adversely affect The Nisshin OilliO Group’s earnings results, financial position and credibility.

Addressing such risks

The Nisshin OilliO Group is engaging in the following initiatives.

<Reducing environmental load>

• • We have installed cogeneration systems at the Yokohama Isogo Plant and Nagoya Plant, and developed an energy network that makes it possible to transfer generated power surplus to other factories. This has enabled us to secure a stable supply of electricity while significantly reducing our greenhouse gas emissions as a result of achieving fuel conversion.
• • In March 2021, we declared our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

<Palm oil>

• • We have been engaging in initiatives pursuant to the Palm Oil Sourcing Policy for procuring certified palm oil and building a traceable and transparent supply chain.

<Plastic containers>

• • The Company has been successively introducing products upon having developed lighter-weight containers and packaging that uses recycled polyethylene terephthalate (PET) materials.
• • We have been redoubling our efforts to procure recycled materials over the medium to long term (through joint investment in a company that promotes technological development and practical applications in terms of recycling end-of-life plastics).

Description of material risks

The Nisshin OilliO Group has been expanding its business not only within Japan but also in Southeast Asia, Europe and elsewhere. The following scenarios pose risks, particularly when it comes to overseas business development.

• i. Unexpected enactment, revision or abolition of laws and regulations
• ii. Occurrence of unforeseen political and economic developments
• iii. Social turmoil and other geopolitical risks due to terrorism, strife and other such developments

Addressing such risks

To minimize such risks, The Nisshin OilliO Group will endeavor to collect information and respond accurately and promptly within the crisis management structure.
In addition, the Board of Directors will monitor key business locations.

Description of material risks

The Nisshin OilliO Group’s earnings results, social responsibility, and financial position could be adversely affected amid a potential scenario where key points of the supply chain become subject to the effects of situations that could include the prevalence of communicable diseases, infectious diseases or other such developments; contagion of employees or others; restrictions imposed on business activities including those of outsourcers; or insufficient procurement of raw materials. The Nisshin OilliO Group’s earnings results, social responsibility, and financial position could also be adversely affected should product demand become subject to significant volatility.

Addressing such risks

In coping with the COVID-19 pandemic, The Nisshin OilliO Group assigns top priority to ensuring the safety of its employees and their families. As such, we are continuing to engage in our business activities based on our business continuity plan in a manner that involves thoroughly implementing measures to prevent viral infection and transmission, while having the countermeasures task force at the head office spearhead efforts to revise Company-wide policy as appropriate.

Description of material risks

We strive to ensure our access to requisite logistical capabilities at appropriate cost so that we are able to deliver products to our customers in line with their requests. However, The Nisshin OilliO Group’s earnings results and financial position could be affected should a situation arise where we encounter difficulties in supplying products to our customers.
In Japan, we face concerns that demand may come to exceed supply in the realm of logistics amid the possibility of decreasing freight capacity domestically going forward, given the nation’s prevailing shortage of drivers of articulated vehicles and other trucks along with its aging population. Moreover, the situation of logistics demand exceeding supply could become exacerbated as a result of slow progress achieved with respect to making improvements that address issues involving logistics, particularly in terms of long waiting times such that are typical in the food industry as well as tasks incidental to making deliveries.
We also face concerns regarding the possibility of logistics demand exceeding supply similarly given a shortage of seafarers who operate coastal trading vessels and an aging population.

Addressing such risks

When it comes to products in the household-use and commercial-use domains of the Oil and Fat business, The Nisshin OilliO Group strives to reduce such risks by taking steps that include reassessing delivery lead times, overhauling inventory facilities, securing alternative means of transportation, and promoting White Logistics initiatives.
We will also further promote shipping handled jointly through a logistics company funded by five food manufacturers and initiatives to improve our logistics.
Going forward, we will also keep optimizing the entire supply chain in pursuit of achieving “local production for local consumption” whereby we deliver products that have been manufactured at factories situated in closer proximity to the site of consumption.

Description of material risks

Professional talent equipped with diverse values and expertise is a must when it comes to achieving the vision set forth under The Nisshin OilliO Group Vision 2030. Meanwhile, a shortage of such talent would result in diminished competitiveness.
On the other hand, when it comes to the notion of consistently providing safe and reliable products, we are particularly aware that a prospective shortage of talent tasked with activities involving production and distribution sites constitutes a major risk in terms of our business continuity.
In addition, personal health is the most important factor when it comes to each and every employee achieving fulfillment personally and professionally while also persistently demonstrating their potential enthusiastically within the Group. Our exposure to employee health risk could adversely affect productivity and other aspects of operations.

Addressing such risks

The Group will take further action to secure and reinforce requisite professional talent by focusing efforts on creating a vibrant organization that gives rise to innovation. This will involve valuing employee diversity, increasing investment in human resource development programs that enable each and every individual to grow, recruiting talent from outside the Company as necessary, empowering female employees, and promoting health management.
Our efforts to consistently provide safe and reliable products involve taking steps to secure and retain professional talent in part through ongoing recruitment and training and by optimizing working conditions. We also streamline operations and achieve labor savings by enlisting IoT, AI and other such technologies.
Having established a framework for promoting health management, to which top management holds the ultimate authority, the Group engages in various health management initiatives for the purposes of achieving better physical and mental health for employees, job satisfaction, and productivity gains.

Description of material risks

The Nisshin OilliO Group has established information systems for the purposes of achieving smooth and efficient execution of business operations encompassing production, logistics and sales management, as well as finance and accounting. We also retain important information for business operations along with confidential and personal information gained in the course of doing business. We accordingly incur risks that include the possibility of business delays and data breaches associated with potential system disruptions arising due to conceivable developments that may include major disasters, power outages, computer viruses, and cyberattacks.

Addressing such risks

In order to improve reliability of our information systems and prevent data breaches, The Nisshin OilliO Group has taken action that includes adopting security measures enlisting both hardware and software, conducting employee education and training, and taking steps to ensure that risks do not materialize.
In addition, the Information Security Committee is regularly furnished with reports on information security measures, which it evaluates and reviews.