In FY2023, the business environment surrounding the Group in the domestic energy industry has changed significantly, including approval of the 6th Basic Energy Plan for achieving carbon neutrality by 2050 by the Japanese cabinet in October 2021. The price of crude oil and propane contract prices, which affect the purchase prices in our mainstay area of petroleum and LP gas, temporarily surged due to the extension of coordinated production cuts by major oil-producing countries. However, overall they remained low when compared to the previous fiscal year due to the slackening of supply and demand due to such factors as global warming and economic slowdown in China. On the other hand, domestic demand for oil and gas continues to fall overall due to the population decline resulting from the declining birthrate, the spread of energy-saving devices, lifestyle changes, and other such factors.

In the oil and gas industry, the price of crude oil is significantly affected by OPEC-plus production volumes and the situation in the Middle East on the supply side and by the economic situation in the United States, China, India, and other major consumer countries on the demand side. In addition, increased environmental awareness and public and private sector initiatives to bring about a decarbonized society in Japan are expected to result in a greater focus on conserving energy. These fluctuations in crude oil prices and changes in the domestic market and energy environment could have a significant impact on the Group's performance, etc.

The Group cannot directly address fluctuations in crude oil prices or energy conservation among consumers. As such, in the Retail/Wholesale Energy & Related Business (BtoC Business), we are working to reduce the risk of environmental changes in the industry by expanding housing equipment sales and the home & life services business such as home renovations. In the Energy Solutions Business (BtoB Business), we are moving into non-oil and gas businesses such as solar power generation facility maintenance and expanding the renewable energy business in Japan and overseas. We are also actively investing in non-energy businesses such as the Lifestyle Solutions business.

The Group's main businesses are the Retail/Wholesale Energy & Related Business (BtoC Business) and the Energy Solutions Business (BtoB Business). They account for 94.1% of net sales for all segments combined. The energy business is affected primarily by fluctuations in temperature. In particular, kerosene for consumers, which is the main product in the Petroleum Division, sees peak demand in the winter, and there is a significant disparity in consumption compared to in the summer. For this reason, if kerosene consumption decreases in the winter due to warmer temperatures, it will throw off the sales plan and also impact prices. As such, fluctuations in temperature could have a significant impact on the Group's sales results, performance, etc.

In the Retail/Wholesale Energy & Related Business (BtoC Business) and the Energy Solutions Business (BtoB Business), we are working to reduce the risk posed by temperature fluctuations by expanding sales of electricity, which sees increased demand in the summer, rather than relying only on oil and gas, which sees varying demand depending on the temperature in the winter. In addition, in the Energy Solutions Business (BtoB Business), we are working to shift our existing petroleum sales facilities to Oil Square, which has the improved capacity to ship light oil, which is expected to be in demand throughout the year as fuel for construction machinery and trucks, etc.

Under the background of soaring prices for fuel such as LNG around the world, the supply and demand environment for electricity continues to change dramatically. Especially in the summer and winter demand months, fluctuations in electricity wholesale prices can have a significant impact on performance, but while working to minimize price fluctuation risk by promoting the transition to a market-linked plan (B to B Business) we have been participating in balancing groups with other companies (a system in which several electricity retailing companies in the B to C Business form a single group and enter a single consignment supply agreement with general electric power distributors), and outsourcing power procurement and supply and demand management to optimize the balance between supply and demand.

Trans-industrial competition, including electricity, oil, city gas, and LP gas, is intensifying in the energy industry to which we belong due to factors such as deregulation, environmental problems, and the declining birth rate coupled with an aging society. We expect this trend to continue in the future as ecology-related product lines such as all-electric, solar power generation, and ENE FARM are developed and promoted.

Competition is also intensifying in the LP gas industry to acquire customers, and prices are going down as a result. Competition remains fierce in the oil industry with competition between gas stations for survival, route sales of kerosene, and competition between sales channels, including home improvement centers. In addition to such intensifying competition between energy types and between industry competitors, there is heightened awareness of global decarbonization and SDGs, and efforts to achieve carbon neutrality by 2050 are picking up steam in Japan. Demand will rise significantly for us to take responsible action as a general energy service group, and delays responding to such matters may have a significant impact on the performance, etc. of the Group.

In the Retail/Wholesale Energy & Related Business (B to C Business) we are working to maintain and expand our business foundation through acquisition of business rights of LP gas and M&A with competitors. In addition, we are working to reduce the risk of intensified competition through such as beginning sales of Melife carbon neutral LP gas, which emits virtually zero CO2 emissions, as a new initiative to expand the number of customers and also encourage customer loyalty through package sales of oil, gas, and electric energy.

In addition, in the Energy Solutions Business (B to B Business), we are working on efforts to "shift our portfolio to comprehensive energy services including electricity and renewable energy," by such means as offering a substantially 100% renewable energy electricity rate plan, starting to supply renewable energy through an off-site corporate PPA and launching trade in next-generation biodiesel fuel that contributes to reducing CO2 emissions.

The Group believes in prioritizing safety above all else. As such, we regularly conduct strict safety audits on equipment related to oil and LP gas sales based on relevant laws and internal regulations. At petroleum facilities, we carry out comprehensive risk management that includes risk financing in collaboration with Sompo Japan Insurance Inc. to prevent environmental pollution accidents arising from oil leaks. However, these measures do not eliminate the possibility of accidents involving oil or LP gas leaks or the resulting losses.

In the Retail/Wholesale Energy & Related Business (BtoC Business), in addition to statutory inspections, we conduct Himawari Inspections on gas equipment in detached homes as voluntary safety inspections at the request of customers.

In addition, in the Energy Solutions Business (BtoB Business), we work to ensure the safety of equipment and reduce risks related to environmental pollution by conducting daily leak checks for early detection of any oil leaks.

The Group is engaged in both wholesale and retail sales. Wholesale sales are mostly on credit, and as of March 31, 2024, the balance of trade receivables such as notes and accounts receivable was 39.8 billion yen.

We are working to expedite collection of these trade receivables by shortening payment maturities and adopting a cash prepayment system for some, taking into account the customer's financial situation. In addition, we engage in thorough credit management using a computer system. Further, the Group records sufficient allowances to prepare for loss from bad debts, but in the event of unforeseen circumstances, there could be difficulty recovering credits, which could impact the Group's performance, etc.

The Group sets credit limits every year based on the database of a credit research company to ensure thorough credit management. We work to reduce customer credit risk by deciding on increases to credit limits on a case-by-case basis.

The Group engages primarily in yen-denominated transactions in Japan. However, some transactions are done in foreign currencies, such as the petroleum product imports and exports of Sinanen Co., Ltd., the bicycle imports of Sinanen Bike Co., Ltd., and the antimicrobial exports of Sinanen Zeomic Co., Ltd. For this reason, the Group's performance could be impacted by foreign currency exchange rate fluctuations. The Group conducts hedge transactions to mitigate the risk of foreign currency exchange rate fluctuations, but these risks may not be entirely avoidable.

In addition, we mostly procure our main products, petroleum and LP gas, from domestic distributors, and there is a risk that the import price of oil and LP gas could indirectly impact the Group's purchase price due to exchange rate fluctuations.

In foreign exchange transactions, we set foreign exchange contracts and assumed exchange rates and are working to reduce risk arising from foreign exchange rate fluctuations through hedge transactions.

The Group owns land to be used for petroleum wholesale, LP gas refilling, and gas station facilities, mostly as assets pertaining to the energy business. As of March 31, 2024, the book balance of property, plant and equipment was 28.2 billion yen. Up to now, the Group has worked on selling off inefficient assets to strengthen its financial standing.

Capital expenditures are executed after carefully considering the recoverability, and the recoverable amount is regularly evaluated. As a result, there is a risk of impairment loss.

In the 3rd Medium-Term Management Plan, the Group set forth improvement of capital efficiency as a qualitative target. We are working to reduce risks related to the valuation of fixed assets by attempting to improve the efficiency of our business, increase the profit margin, and effectively utilize low-operating assets to obtain revenue.

To strengthen the management foundation, the Group may establish subsidiaries or affiliates or engage in capital alliances with other companies. When investing, the Group considers the investment risk in making the decision. The investment value is then checked regularly to determine recoverability. At that time, the policy is to estimate the irrecoverable amount and record an allowance as required. However, if the investee's business performance or financial standing worsens more than anticipated, it could impact the Group's performance.

The Company group holds shares long term for the purpose of strengthening and facilitating business relationships and alliances. Impairment accounting has been applied to some of these shares, but we believe there is sufficient investment value from subsequent business results of the investee, their financial standing, and stock price movement. However, in the event of unforeseen circumstances in the Japanese economy or the situation overseas, a valuation loss from a drop in stock price could impact the Group's performance.

When it comes to business investment and investments such as the acquisition of shares, the Group has established a Preliminary Review Committee to evaluate appropriateness and profitability, etc. along with a Management Meeting that serves as an advisory body for decision-making by the President and CEO. We work to reduce risks related to investments by referring to the reviews conducted by these bodies when making the final decision. We also work to reduce risk by continuing to regularly monitor investments, and if the pre-determined criteria for discussing withdrawal are met, instructions are given to either make improvements or withdraw/sell.

The Group is actively working to uncover and cultivate new revenue streams, however, changes in the business environment may result in new businesses not being as profitable as expected, and the performance of these new businesses may have an impact on the performance, etc., of the Group in the future.

In relation to the entering new businesses as well, the Group works to reduce risks by going through a process similar to that of risks related to investment with a Preliminary Review Committee and Management Meeting and conducting feasibility studies beforehand. We also aim to reduce risks by monitoring the businesses just as we do with risks related to investment.

We are making use of permits obtained from domestic and overseas bodies, including the U.S. Environmental Protection Agency (EPA) and the U.S. Food and Drug Administration (FDA), for Zeomic, the antimicrobial manufactured by Sinanen Zeomic Co., Ltd., and we are marketing it in the United States, Europe, China, South Korea, Southeast Asia, and other countries. In Europe, we are working to obtain EU-BPR (European Union Biocidal Product Regulation) approval through the collection of regulatory information and the exchanging of information with the relevant authorities.

In this manner, the Group is engaged in business overseas, and this entails risks such as revisions to trade laws and regulations, taxes, and other policies, political or economic changes, terrorism, war, and social disorder arising from other such factors.

When setting up operations overseas, the Group works to reduce related risks by investigating and evaluating political socioeconomic trends, legal systems, (preferential) tax systems, etc. beforehand.

The Group is engaged in manufacturing and sales in the antimicrobial business, the environment and recycling business, the bicycle and other imports business, and others. Since launching production, we have been careful with quality control, and we enrolled in product liability insurance following the enactment of the Product Liability Act in order to reduce the burden of costs arising from accidents. In addition, based on the Consumer Product Safety Act, we work to thoroughly familiarize users with how to safely use our products and strengthen our response to accidents.

However, a large-scale product recall or an unexpected accident that subjects the Group to product liability in the future could impact the Group's performance, etc.

Sinanen Zeomic Co., Ltd., which is engaged in the antimicrobial business, acquired ISO 9001 certification in April 2002 and is strengthening its internal quality audit system. In addition, each operating company engaged in the manufacture and sale of products works to reduce risks related to product quality and safety by establishing departments in charge of quality control.

The Group holds personal information such as data on consumers of oil, gas, and electricity, etc., in the Energy Business, and data on customers who have purchased products and services, etc., in the Non-energy Business. To protect this personal information, we have established a Risk Management and Compliance Committee, conduct regular training for employees on protecting personal information, have introduced an information security system that includes encryption, and have established various rules.

However, were personal information to be leaked to the outside for some reason, the Group's performance, etc. could be impacted by a decrease in net sales resulting from loss of trust in the Group.

The Group has established a Privacy Policy and rules for protecting personal information to reduce risks related to the handling of personal information. Group company Minos Co., Ltd., which is engaged in the systems business, is Privacy Mark-certified and has obtained ISO/IEC 27001:2013 and JIS Q 27001:2014 certification in relation to its information security management system (ISMS).

The Group's assets include facilities used in the energy business, such as petroleum wholesale facilities, LP gas refilling facilities, and gas station facilities, and manufacturing facilities for the antimicrobial business, warehouses and stores for the bicycle business (including inventory), and bicycles and station facilities for the bike sharing business. If these facilities were to be damaged by a large-scale typhoon, earthquake, tsunami, flood, or other natural disaster, the Group's performance, etc. could be impacted as a result of not being able to engage in normal business activities.

The Group has installed emergency power supplies at core facilities, such as refilling facilities, to ensure business continuity and prepare for natural disasters and other emergency situations.

In addition, we are working to reduce risks related to natural disasters by adopting seismic isolation, seismic resistance, and seismic damping structures in our buildings.

We launched a Group Crisis Task Force because Melife-West Co., Ltd. has a store in Suzu located on the Noto Peninsula, which is the area affected by the Noto earthquake that occurred on January 1, 2024. During the fiscal year under review, we have checked for physical damage such as Suzu store equipment damage and damage to solar power generation facilities, etc., and have recorded extraordinary losses of 100 million yen due to the damage at solar power generation facilities.