Major Risk Factors
The Yamato Group takes those items concerning the business status and accounting status described in our financial statements which we recognize as important risks that can significantly impact the business results of the Yamato Group from the perspectives of their impact on performance and the likelihood that they will materialize, and categorizes these into risks involved in the business environment and corresponding strategies, and risks involved in business management. These risks are summarized as follows.
Forward-looking statements in this document are based on the judgment of the Yamato Group as of the date of submission for the financial statements.
(1) Risks Involved in the Business Environment and Corresponding Strategies
(i) Risks due to changes in the market and competitive environment
The business environment surrounding the Yamato Group is changing significantly and rapidly. The growth of e-commerce in industry is leading to the increase of small-lot shipments, and customer expectations and needs are becoming more diverse. While TA-Q-BIN was adapted for the conventional consumption / industrial structure, we may not be able to respond to these environmental changes using TA-Q-BIN alone. In addition, the competitive environment is also changing. Not only has competition with logistics businesses become harsher as the market structure has changed, there is also increased importance on strategic relationships with e-commerce platforms that promote in-house logistics. The delivery business accounts for approximately 80% of the consolidated operating revenue of the Yamato Group in the current fiscal year. If the delivery business in particular cannot respond appropriately to changes in the market and competitive environment, it may affect the business results of the Yamato Group. In addition, corporate involvement and problem solving for the development of a sustainable society are becoming more and more important, and corporate activities that do not involve sustainability may result in a decline in customer support, deterioration in relationships with the regional society, difficulty in securing talented human resources, and higher financing costs. This may affect the business results of the Yamato Group in the mid- to long-term.
In light of these risks, in January 2020, the Yamato Group formulated a management structure reform plan, "YAMATO NEXT100," which is a grand design for our mid- to long-term management. We are reforming our management structure with a focus on TA-Q-BIN and promoting various efforts based on three basic strategies: "Transform into a management that can boldly address customer and social needs," "Shift to a data-driven digital management," and "Evolve into a management that creates a logistics ecosystem openly through co-development." In this plan, the Yamato Group has positioned "Sustainability initiatives - Management embodying the environment and society -" as one of its infrastructure transformations, and under the two visions of a "Connect. Deliver the future via green logistics." and "Through co-creation and fair business activities, help create a society that "leaves no one behind"" which depict the efforts we will take to trailblaze a sustainable future, we aim to connect people, resources, and information in a sophisticated way to achieve more efficient transportation, thus achieving logistics that is more friendly to the environment, society, and economy. Furthermore, we are promoting efforts for the important issues we have laid out.
(ii) Risks due to the declining working population
Many of the businesses operated by the Yamato Group are labor-intensive, and it is essential for us to secure high-quality human resources as our workforce and to assign them to their positions appropriately. If the supply-and-demand for labor becomes even tighter due to a decline in Japan's working population and it is not possible to secure sufficient human resources, or if costs significantly increase due to more intense competition over human resources, the Yamato Group's business results may be affected.
In light of these risks, the Yamato Group is constructing an attractive human resource system, implementing an evaluation system that evaluates employees on their independence and autonomy for a more vibrant work style, reconstructing our education framework, and more, in order to achieve a vibrant work environment that is employee-friendly and rewarding for employees as well as to achieve greater employee satisfaction while also becoming a company chosen by diverse human resources. We also promote the digital transformation of TA-Q-BIN, striving to improve the accuracy of supply-and-demand and workload predictions through the utilization of data analysis and AI in order to optimize and standardize the transport / delivery process and our overall operation as well as to improve the productivity of pickup / delivery and trunk route transportation.
Furthermore, we will promote reform in our sorting process by implementing digitalization and robotics in order to improve the sorting productivity of our entire logistics network.
(iii) Risks involved in the evolution of technology
The logistics industry in which the Yamato Group operates is undergoing various changes due to the evolution of technology, such as resource optimization through the utilization of AI, IoT, big data, and more, the automation of warehouse operations through the utilization of robotics, and reformation of trunk route transportation and last-mile delivery through the utilization of drones and automated driving. If the Yamato Group is unable to respond appropriately to the emergence of new business models expected in the short to mid-term, or if there is a misunderstanding of technological trends or inadequacies in the implementation method of cutting-edge technologies, the investment effect may not be achieved as expected, which may affect the Yamato Group's business results.
In light of these risks, the Yamato Group is promoting the shift to a data-driven digital management and establishing a dedicated organization to bring together internal and external digital and IT personnel to promote the implementation of cutting-edge technologies. We are also striving to quickly detect technologies and business models that could become a threat to the Yamato Group through direct investment and CVC funds in the digital field, as well as to create new growth models through open innovation.
(iv) Risks involved in information security
In addition to confidential business information, the Yamato Group also holds a great deal of personal and customer information through its logistics operations and commissioned information processing. If information were to be leaked externally or data were to be lost due to causes such as cyber attacks or inadequate management, the business results of the Yamato Group may be affected due to damaged public trust, claims for damage compensation, and doubts about the data strategy we are promoting.
In light of these risks, the Yamato Group is engaged in organizational and personnel-based measures as well as multi-layered technical measures assuming more advanced and more sophisticated cyber attacks.
(v) Risks involved in depopulation of the region
Japan, which is the Yamato Group's main market, is experiencing a decline in the total population as well as a variety of issues in regional lifestyles and regional economies. In depopulated and aging regions, declining delivery efficiency and a shortage of human resources for pickup and delivery have become apparent. In the future, the business results of the Yamato Group may be affected if problems such as the decline of the regional social infrastructure due to a shrinkage of the local economy become more serious, or if it becomes more difficult to maintain a logistics network that covers the entire country in fine detail from a mid- to long-term perspective due to the decreasing profitability in such regions.
In light of these risks, the Yamato Group is reforming its group management system based on our management structure reform plan, "YAMATO NEXT100." The department in charge of the regional corporate business will take the lead in working with stakeholders in the region, including local governments, to reconstruct the supply chain as a regional infrastructure and contribute to the sustainability of the regional society.
(vi) Risks involved in compliance
The Yamato Group promotes management that places the utmost priority on compliance. However, it may not be possible to completely avoid compliance risks in products and services, work and safety, and the entire supply chain, and if a situation that infringes on a law or regulation were to occur, the Yamato Group's social trust and brand image could be damaged, and additional costs could be incurred in response to that occurrence. This may affect the business results of the Yamato Group.
In light of these risks, in order to improve the soundness of our Group management, the Yamato Group is striving to enhance our Group governance by appropriately operating our product management process based on our product management regulations, implementing ethics education for employees, and working to quickly discover and appropriately respond to inappropriate cases through our whistle blower system and questionnaires for cooperating companies and partners. In addition, based on our management structure reform plan, "YAMATO NEXT100," we will reform the group management system, shorten the distance between management and the front line, and aim to have closer communication and swifter decision-making, thereby striving to cultivate a healthy corporate culture.
(2) Risks Involved in Business Management
(i) Risks involved in infectious diseases
Many of the businesses operated by the Yamato Group are labor-intensive, and we operate our businesses assuming the safety and health of our employees. In the event of an unforeseen outbreak of an infectious disease, the business results of the Yamato Group may be affected due to a lack of human resources because of employee illness, costs involved in providing hygienic supplies, and increased difficulty in continuing business. In addition, due to the ongoing effects of the COVID-19 infection, global manufacturing production and trade activities have become stagnant, demand from inbound tourism has declined sharply due to travel restrictions, and the service industry and other businesses have refrained from business activities, resulting in a downward trend for the overall economy. If it takes a long period of time for the situation to be resolved, the business results may be affected due to a decrease in transactions with corporate customers.
In light of these risks, the Yamato Group is working to ensure that customers can use TA-Q-BIN with peace of mind. We pay the utmost attention to employee hygiene management, as well as support parcel deliveries without face-to-face contact, implement infection prevention measures during customer service, and disseminate information utilizing our website and other means. By doing so, we are striving to continue our TA-Q-BIN service and other logistics services with the utmost priority on the safety of our customers and employees.
(ii) Risk involved in providing services that do not meet customer expectations
The Yamato Group has gained the support of its customers by providing high-quality services such as TA-Q-BIN. However, growth in the e-commerce domain across all industries has been accelerating, and the expectations and needs of our customers are growing more diverse. If we fail to adopt appropriately to these changes, a decline in customer support may affect the business results of the Yamato Group.
In light of these risks, in April 2021, the Yamato Group will reform its Group management system, reorganizing the conventional function-based organization in the four customer-based segments of Retail, Regional Corporate, Global Corporate, and EC (e-commerce), thus facing our customers' needs as we move forward with formulating our CX (customer experience) strategy. We are also promoting the digital transformation for our TA-Q-BIN to construct an environment where sales drivers can spend more time providing services to customers.
(iii) Risks involved in M&A and capital and business alliances
The Yamato Group has been implementing capital and business alliances and the like with overseas logistics companies in order to respond to the expansion of cross-border logistics with the goal of sustainable growth. However, if we are unable to achieve the expected results due to changes in the business environment or competition, or if unforeseen business problems occur, our business results may be affected.
In light of these risks, the Yamato Group makes decisions on investment projects after thoroughly examining the business model we should aim for based on the results of feasibility studies and other factors, and continues to conduct periodic monitoring after investment.
(iv) Risks involved in disasters, power outages, and the like
The Yamato Group's main business is the transportation of parcels by vehicle, and we operate our business assuming the safety and health of our employees, the maintenance of our vehicles and facilities, and the stable supply of fuel and electricity. In the event of an unforeseen large-scale natural disaster, power outage, or the like, the Yamato Group's business results may be affected due to a shortage of human resources caused by employees being affected by the disaster, damage to or submersion of vehicles, information equipment, facilities, or the like, business stoppages caused by power outages or water outages, or insufficient supply of fuel and other supplies, as well as repair and replacement costs for vehicles, facilities, and the like.
In light of these risks, the Yamato Group, as a corporate group responsible for social infrastructure, has formulated a business continuity plan (BCP) to ensure that we can continue to provide stable services even in unexpected situations. In addition, in light of our experience of the Great East Japan Earthquake that occurred in 2011 and other such disasters, we are working to strengthen the crisis management system throughout the Group to respond to a variety of hypothetical emergency situations. In addition, we conduct BCP drills, facility flood risk assessment, and more as well as carry out continuous reviews to our manuals related to pickup / delivery shutdowns and maintenance work in preparation for post-disaster response and unforeseen disasters.
(v) Risks involved in serious traffic accidents and occupational accidents
The Yamato Group conducts its business activities using vehicles on public roads, mainly in the delivery business, and if a serious traffic accident were to arise, the Yamato Group could suffer a drop in social trust, discontinuation of the use of its vehicles due to administrative punishment, discontinuation of business operations at its offices due to the violation point system, revocation of its business license, and other measures. This could result in business being disrupted or suspended. In addition, causing a serious occupational accident that impairs the occupational safety of employees and others could affect the business results of the Yamato Group.
In light of these risks, the Yamato Group places the utmost priority on respect for human life, and is working to promote transportation safety management, to formulate and comply with rules to ensure safety, to maintain facilities and systems, to instill safety awareness in employees, and to ensure occupational safety.
(vi) Risks due to the influence of international situations and the like
If the regions in which the Yamato Group conducts its business activities or the regions in which its major clients conduct their business activities are affected by terrorism, war, or other international conflicts or trade disputes, the business results of the Yamato Group may be affected by stagnating logistics caused by disruptions in the supply chain or the like, as well as employee evacuations or other similar reasons. In addition, as the Yamato Group's main business is the transportation of parcels by vehicle, mainly in the delivery business, a constant, stable, and appropriate supply of fuel such as diesel oil is essential in order to carry out the business. If supply were to be restricted or fuel prices were to skyrocket due to international situations or the like, the business results of the Yamato Group may be affected.
In light of these risks, the Yamato Group meets customer needs using a variety of transportation methods by land, sea, and air, and is promoting measures to reduce fuel use, including modal shifts, the introduction of low-pollution vehicles, and the promotion of cart pickup and delivery.
(vii) Risks due to influence from the financial market
The Yamato Group acquires the necessary funding by utilizing Group funds as well as borrowing from financial institutions and issuing bonds while referring to our investment plans for business continuity and growth. The future economic situations of Japan and abroad may make it difficult to procure funding if the financial markets become dysfunctional or if financial institutions are selective in their lending, and interest expenses may increase due to rising interest rates.
In light of these risks, we will maintain and strengthen our financial soundness in terms of cash generation, cash and deposits held, equity ratio levels, and the like, as well as strive to appropriately diversify our funding sources and timing.
(viii) Risks involved in environmental regulations
The Yamato Group uses a large number of vehicles to carry out its business. If global environmental issues such as climate change become even more serious, and regulations and obligations to reduce greenhouse gas (GHG) emissions are strengthened, costs could increase due to the introduction of low-carbon vehicles and facility renovation, mainly in the delivery business, affecting the business results of the Yamato Group.
In light of these risks, the Yamato Group has established "Promoting Environmental Conservation" as part of its "Corporate Stance" and is working to solve environmental issues through its business. In particular, we recognize that the risks and opportunities of climate change are important matters deeply related to our business growth. We have set targets for cutting CO2 emissions, and are taking measures to reduce energy usage through monitoring and cause analysis for energy consumption. We are also actively promoting GHG cuts by shifting to low-carbon vehicles such as hybrid vehicles and electric vehicles, and by using more battery-assisted bicycles and carts for pickup and delivery in urban areas. In addition, we are promoting efforts to mitigate the effects of climate change and adapt to it by not only reducing the environmental impact of our business, but also pursuing ways to provide services that contribute to cutting CO2 emissions.
(ix) Risks involved in labor-related laws and systems
Many of the businesses operated by the Yamato Group are labor-intensive, and it is essential for us to secure high-quality human resources as our workforce and to assign them to their positions appropriately. In the event of revisions to laws, regulations, systems related to labor, social insurance, or the like, the Yamato Group's business results may be affected due to a significant increase in costs to comply with such revisions.
In light of these risks, the Yamato Group is working to develop a labor environment and personnel system that appropriately complies with the legal system, as well as to improve productivity through the digital transformation of the TA-Q-BIN and other measures.