Realizing ever greater levels
of food safety and reliability.

Basic Policy for Risk Management

YOKOREI is tackling the risk surrounding its business by engaging in risk management aimed at preventing said risk in advance and minimizing damage should it occur.
We manage risk under a basic policy based on our Risk Management Rules. This policy includes basic objectives and guidelines for action.

(1) Basic Objectives

The objectives of our risk management activities are to reduce the loss of management resources, including people and objects, due to the various risks we face through our business activities, to enable a swift recovery from emergency situations and ensure such a situation does not reoccur in the future, and to secure sound management and revenues.

(2) Guidelines for Action

• Stay highly consciousness of risk and continuously work to enhance measures for preventing it and capacity for responding to it.
• Conserve and appropriately allocate management resources to secure sound management and profitability.
• Maintain the health and safety of employees and their families.
• Prioritize the recovery of humanitarian and social considerations when responding to emergency situations.
• Practice risk management that improves the company's reputation within society.
• Practice risk management that reflects societal demands concerning risk.

Business and Other Risks

Among the matters regarding YOKOREI Group's business and accounting status presented in the Annual Securities Report, the following matters have a reasonable possibility of having a material effect on investor decisions.
Of note, matters concerning the future are based on the Group's judgement as of September 30, 2020.

1. Climate change (global warming) risk

The Group recognizes that the risks and opportunities presented by climate change are important management challenges. In the YOKOREI Sustainability Vision 2030 formulated in October 2020, the Group adopted the vision "For a brighter food future – YOKOREI will ensure a stable food supply to help support a sustainable society" and is focusing on conducting business in consideration of the global environment.
Based on the recommendation of the Task Force on Climate-related Financial Disclosures (TCFD), the Group assessed the effects of climate change in terms of risks and opportunities, adopted "Harmony with the Global Environment" as one of the "Materiality" themes that will be key to achieving sustainable growth for the Group, and is further expanding activities for future business growth. In terms of current specific measures, in the Refrigerated Warehousing business the Group is taking steps to reduce energy consumption overall, increase the use of renewable energy, and transition to natural refrigerants, and has set quantitative targets for 2030 of reducing greenhouse gas emissions per storage capacity by 40% compared to 2015 levels, and achieving a natural refrigerant implementation rate of 80% or higher.
As a result of global warming and other aspects of climate change, in the Refrigerated Warehousing business, there is a reasonable possibility that business results will be affected by an increase in the cost of power (electricity rates) needed to cool warehouses amid rising temperatures, or higher electricity rates stemming from regulations to counter global warming. In the Food Sales business, there is a reasonable possibility that the Group could have difficulty procuring and supplying products because of changes in the natural environment, outbreaks of viral diseases or insect pests, or other factors that result in lower fish catches or production volume, or because of rising procurement costs for cultured marine fish or livestock stemming from higher feed costs, and that this could affect business results.

2. Natural disaster risk

As a result of typhoons, torrential rains, flooding, earthquakes, or other natural disasters, in the Refrigerated Warehousing business there is a reasonable possibility that business results could be affected because of damage to facilities or equipment and increases in repair costs, or disruption to the physical distribution system. In the Food Sales business, there is a reasonable possibility that business results could be affected because of damage to culture farms and the death of cultured fish, or declines in catches of marine products, production volume of cultured fish, or agricultural product yields.
The Group has formulated a Business Continuity Plan (BCP) for disasters and established a crisis management system to ensure employee safety and continue business operations. The Group also takes additional countermeasures including building refrigerated warehouses that are resistant to natural disasters, and operating culture farms in countries with less risk of natural disaster.

3. Risk from spread of infectious disease (such as COVID-19)

As a result of the expansion of the COVID-19 pandemic, in the Refrigerated Warehousing business, if there is an outbreak of the virus among the Group's employees, there is a reasonable possibility that stoppages of business operations or delays in cargo movement could lead cargo owners to tighten inventory management, and that the subsequent decline in storage amount could affect business results. In the Food Sales business, there is a reasonable possibility that the pandemic could affect business results because of declining sales due to reduced consumption, sluggish sales to the restaurant industry, or slowdowns at product suppliers or production centers.
The Group, as an infrastructure corporation supporting the food industry, and based on a strong sense of mission among all employees to sustain the logistics network, has implemented strict infection control measures and continues to operate as normal. To lessen infection risk, the Group is also implementing manpower and labor-saving measures at refrigerated warehouses, including introducing a cargo navigation system, and truck arrival reservation system.

4. Risk related to economic conditions and the business environment

As a result of changes in economic conditions and the business environment, in the Food Sales business, there is a reasonable possibility that appreciation in product procurement costs or a slowdown in consumption could affect business results. There is also a possibility that business results could be affected by industry realignment or other factors. In the Refrigerated Warehousing business, there is a reasonable possibility that business results could be affected by a decline in storage amount from cargo owners tightening inventory management. At the same time, there is a possibility that an increase in demand for frozen foods could lead to greater storage demand, and a shortage of storage space supply.
The Group diversifies risk through cooperation between the Refrigerated Warehousing and Food Sales businesses.

5. Risk related to product price fluctuations

There is a reasonable possibility that business results could be affected by significant fluctuations in procurement or sales prices resulting from such factors as competition for resources stemming from population explosions overseas or changes in dietary habits. Accordingly, the Group diversifies its supply sources by developing new product suppliers and production levels and strengthening the aquaculture business, as well as diversifies risk by optimizing inventory.

6. Risk related to fixed assets

The Group owns numerous refrigerated warehouses, which requires a significant investment in facilities, as well as salmon aquaculture farms in Norway. There is a reasonable possibility that a change in the business environment, occurrence of a natural disaster, or other factors could lead to a decline in earnings or the impairment or disposal of fixed assets, which could have a material effect on business results.

7. IT (systems) risk

The Group's Refrigerated Warehousing and Food Sales businesses are managed using a nationwide online system. There is a reasonable possibility that business results could be affected if the Group has difficulty providing service to business partners or maintaining business operations because of operating system outages resulting from equipment damage due to disaster or cyberattacks from unauthorized access or computer viruses, or if there is a disruption of networks or data leaks. Accordingly, the Group has strengthened its organizational structure by changing its Information Systems Department to the IT Management Department and establishing an IT Strategy & Planning Division, as well as regularly updating servers and implementing appropriate security measures.

8. Overseas business risk

The Group, for its overseas business strategy, broadens procurement and sales channels to avoid concentration risk, increases processing on consignment from the standpoint of cost competitiveness, and proactively develops business with the aim of capitalizing on gaps in supply and demand. Further, to strengthen relationships with overseas business partners and ensure stable procurement of resources, the Group provides loans and makes other investments in customer companies and associated firms. However, there is a reasonable possibility that the Group's business results could be affected because of terrorism incidents in the countries where the Group conducts business, or a deterioration in the political situation in those countries, fluctuations in economic conditions, unanticipated changes in laws or regulations, or difficulties stemming from differences in laws and regulations from those of Japan.

9. Foreign exchange fluctuation risk

The import and export of products and food material is one of the Group's main businesses, and transactions conducted in a foreign currency are subject to foreign exchange risk. The Group uses forward exchange contracts to mitigate this risk, but there is a reasonable possibility that if there were sudden fluctuation in foreign exchange to an extent that it cannot be covered by such contracts, the Group's business results could be affected.

10. Risk related to the securing and developing of human resources

Employee operations, the work conducted by employees in the warehouses, is a major feature of the Group's Refrigerated Warehousing business, and one of the Group's strengths. Accordingly, the Group considers securing and developing exceptional personnel to be important. However, because of the increasingly fierce competition to recruit and secure personnel due to the decreasing birthrate and aging population in Japan, as well as population decline, there is a reasonable possibility that if business continuity in the Refrigerated Warehousing business becomes difficult due to an inability to secure and develop human resources, then business results will be affected. Accordingly, the Group makes systematic efforts throughout the year to secure and develop human resources, as well as formulates long-term construction plans for refrigerated warehouses, and is strengthening its internal training systems. The Group also counters risk by working to provide workplaces accommodating to women and a diverse range of people, as well as actively introducing manpower and labor-saving systems.

11. Risk related to product quality and safety

There is a reasonable possibility that complaints or problems regarding product quality could result in a loss of customer trust and have a material effect on business results. At the same time, the Group's brands can gain credibility from an increase in customer satisfaction.
The Group has established a basic policy for quality, and the actions of managers and all employees are based on this policy. In addition, the Group manages quality through the Food Quality Control Office, strengthens its quality control training structure, and takes care to ensure it is able to continue providing safe and high-quality products and services.