Operating Risks

The Group is working to identify and prevent the occurrence of Groupwide risks and to establish an action-based approach to seizing and leveraging opportunities. To that end, the Group has set up the Corporate Risk Management Committee, which is advancing the construction of a Groupwide risk management system. With the aim of establishing a risk management system for the entire Group, this committee has responsibility for system construction, management, and operation, and the committee is continually implementing improvement activities. Major risks that could affect the Group’s operating results, etc., include the following. This summary provides examples of major risks that are anticipated, but it does not include all risks. Forward-looking items in the text are judgments as of March 31, 2022.

1. Risks of Changes in Economic Conditions and Market Environments

The Group’s operations include development in a wide range of industries, and accordingly domestic and overseas economic conditions and market environments affect the Group’s operations directly and indirectly. In Japan, markets are contracting due to a declining birthrate and an aging population, as well as a decreasing population, and the Group’s business results could be affected. However, going forward the Group will work to discover new demand, increase its market share in existing businesses, and create new markets. Furthermore, global trends in the electronics industry affect the Electronic and Optical Products businesses, and accordingly future trends in this industry could affect the Group’s business results.

The Group expects the recovery of economic activity continues through the lifting of restrictions on activities imposed due to the COVID-19 pandemic in the fiscal year ending March 31, 2023. However, if the pandemic lasts longer than anticipated, it could affect the Group’s business environment and operating results.

2. Risks of Changes in Selling Prices

Due to intense competition in both the domestic and overseas markets in which the Group operates, the Group may be unable to maintain selling prices to preserve sufficient earnings or sales share. The Group will work to maintain its market share by achieving differentiation from its competition and refining customer services, and to secure profits by reducing costs. However, if these initiatives are difficult, the Group’s business results could be affected.

3. Risk of Changes in Raw Material Prices

The Group uses a large quantity of pulp for paper and petrochemical  products as raw materials and fuel. The prices of these materials and fuels fluctuate in accordance with market conditions, such as inventories and the supply–demand balance. The Group purchases raw materials in light of careful monitoring of market trends. However, a dramatic change in raw material prices could affect the Group’s business results.

4. Risks Related to Overseas Operations

The Group conducts manufacturing and business operations in markets worldwide. In the fiscal year ended March 31, 2022, the overseas sales ratio was 55.9%. In the countries where the Group conducts manufacturing or business operations, the following events could hinder the Group’s overseas business activities and affect the Group’s business results: political instability or a deterioration in security due to such factors as terrorism, a political change, or a coup d’état; labor disputes involving employees; infectious diseases; and unpredictable changes in laws and regulations, such as those involving tax systems, foreign exchange, or customs clearance; etc. In addition, the risk of foreign exchange rate fluctuations has increased. The Group is focusing on trends in the U.S. dollar and in major Asian currencies, such as the Korean won, Chinese yuan, and Taiwan dollar. The Group is also working to reduce risk through the use of forward exchange contracts, etc. However, the Group’s business results could be affected by fluctuations in foreign exchange rates that exceed expectations.

5. New Product Development

The Group pursues R&D activities with a view to realizing comprehensive technological capabilities that cater to market demand and bringing to market competitive, high-value-added products. Accordingly, the Group is stepping up allocations of management resources to increase its number of researchers and to pursue such initiatives as joint research with other companies and academic institutions. However, there is no guarantee that such investment of management resources in R&D will result in the development of new products or increase operating income. Due to such factors as extended development periods, it could become necessary to discontinue development, and if product development costs cannot be recovered, it could affect the Group’s business results.

6. Intellectual Property Rights

The Group takes necessary measures to protect intellectual property rights in Japan and overseas for various original production technologies that it has developed. However, legal measures alone do not provide complete protection, possibly preventing the Group from effectively protecting the rights it has obtained. Furthermore, in the event that a lawsuit is filed by a third party regarding intellectual property rights infringement associated with the Group’s products, the Group’s business results could be affected.

7. Significant Lawsuits

In conducting business in Japan and overseas, the Group may be subject to lawsuits or other claims related to product liability, environmental, or intellectual property rights issues. Lawsuits or claims, depending on their content, could affect the Group’s business results.

8. Legal and Regulatory Systems

In the countries in which it conducts business operations, the Group is subject to various legal and regulatory systems, and as such is working to ensure rigorous compliance with these systems. In the event that the systems are strengthened or changed, the Group’s business activities could be restricted or the Group’s business results could be affected.

9. Natural Disasters and Major Accidents

The Group has business continuity plans (BCPs) and a business continuity management system (BCMS) in place to respond to natural disasters and major accidents. However, in the event of a large-scale natural disaster caused by climate change, the Group’s performance could be affected if its stable supply of products is interrupted by greater-than-expected damage to the business locations of the Company or its suppliers.