The following risks may affect the Group's operating results, stock price, and financial position. Matters concerning the future in the description are based on judgments made by the Group as of March 31, 2023, and business risks are not limited to those stated here.
1. Risks Regarding Technological Innovation
In some areas of the Group's business, the speed of technological innovation and the changing needs of the market are so rapid that the emergence of new technologies and innovations may render existing products and services obsolete and uncompetitive, affecting the Group's business performance and financial position. In order to respond to this, in addition to continuously carrying out market research and competitive analyses, as well as collecting information on technological trends, etc., we have established a system wherein the manufacturing, sales, and development departments can share information on a regular basis and appropriately manage risks.
2. Market Trend Fluctuation Risks
Fluctuations in the supply and demand of Group products and changes in the strategies of our competitors and business partners could affect our business performance and financial position. In addition to constantly monitoring the external environment, quickly identifying demand and the state of competition, identifying changes in market trends, and taking the appropriate measures, we are managing risk by having four business segments and diversifying our business domains.
3. Raw Material Procurement and Price Fluctuation Risks
The supply stability and quality of the Group's products may deteriorate due to interruptions in the procurement of raw materials, increases in prices, and declines in quality, which may impact our business performance and financial position. In recent years, major risks have arisen, such as a decrease in logistics capacity due to improvements in working conditions in the transportation industry and uncertainty regarding energy supplies due to worsening global conditions, and we recognize these as key risk factors. Regarding the procurement of raw materials, our basic strategy is to purchase raw materials from multiple companies, and we are diversifying and managing risk by ensuring appropriate purchasing routes and stable procurement.
4. Foreign Exchange Rate Fluctuation Risks
The Group's business activities revolve primarily around domestic sales, but as part of our efforts to enhance the price competitiveness of our products, we procure some of our raw materials through imports as a cost reduction measure, which may be affected by rising costs due to fluctuations in exchange rates. In addition, our overseas operations and export-related transactions may be affected by sudden fluctuations in exchange rates. In response, we are taking measures to mitigate the impact of fluctuations as much as possible, such as diversifying procurement risks through multi-company purchasing and fixing purchase prices in advance through forward exchange contracts. In recent years, however, the yen has fallen sharply, so we will continue to consider this an important item to be monitored.
5. Accident and Disaster Risks
The Group handles a number of dangerous substances in its chemical products business, such as explosives and chlorates, and while the likelihood of a serious accident occurring is extremely low, if such an accident were to occur, such as a fire, explosion, or chemical leak, there is a risk of danger to human life, property damage, environmental damage, or the interruption of business activities. We are minimizing risks by setting appropriate safety standards for each manufacturing base, installing appropriate equipment and protective devices, conducting regular patrols at factories to prevent such incidents, and establishing regulations to ensure appropriate education such as fire fighting training.
6. Quality-related Risks
The Group deals in a diverse range of businesses, and each company requires a quality management system that is suited to its particular business. Each Group company has established and operates a consistent quality control system for all stages from raw material procurement to manufacturing and shipping. However, if an unexpected event were to occur that would cause a quality problem to arise for a product, it could negatively impact the credibility and customer satisfaction not only for said company, but the entire Group, which would affect the Group's market share. Furthermore, the costs associated with recalling and reworking products or manufacturing and delivering substitute products could impact the Group's business performance and financial position. The Group has set up meeting bodies where quality managers can share information amongst each other from a stage where there are simply signs of a quality issue, before a major quality issue manifests. We consider and implement measures by referring to the perspectives of different industries, and are working to improve our quality control system through horizontal deployment across Group companies.
7. Risks Regarding Legal Restrictions
If legal restrictions, changes in regulations, or inadequacies in compliance with the Group's products affect our manufacturing, sales, trust, or reputation, it could impact our business performance and financial position. In addition to keeping a close eye on the latest trends in legal and regulatory changes related to environmental issues, chemical substances, exports, and other aspects of our business, we are also ensuring thorough compliance and conducting business appropriately while receiving advice from outside experts.
8. Lawsuit-related Risks
The Group may be subject to litigation, disputes, or other legal proceedings for breach of contract, intellectual property infringement, labor issues, or product defects and other issues in which it is involved, and litigation may impact the Group's business performance and financial position. Based on regulations, each relevant department is working to reduce risks by properly preparing and managing contracts, protecting intellectual property rights, complying with labor laws, managing product quality, etc.
9. Asset Valuation Fluctuation Risks
Since the Group holds stocks, real estate, receivables, and other assets with a market value, in the event of a significant decline in the stock market or if the measurable recoverable amount of fixed assets were to fall below book value, the valuation of these assets could impact the Group's business performance and financial position. We are appropriately managing risk by properly assessing and maintaining assets, including periodically checking the necessity of our retained assets, and will consider capital strategies in our medium- to long-term plans.
10. Risks Due to Natural Disasters
TThe Group's business bases are located mainly throughout Japan. In the event of a natural disaster such as a major earthquake, tsunami, typhoon, or heavy rain, there is a possibility that the Group's production facilities and human resources will be affected, damaged, or injured, and customer demand trends may also change significantly. In addition to monitoring signs such as weather information, we are appropriately managing risks by developing BCPs, introducing employee safety confirmation systems, purchasing disaster insurance for production facilities, and working to improve disaster resilience.
11. Information Security Risks
The Group possesses confidential information regarding customers and business partners, as well as information on development, production, sales, accounting, corporate strategy, etc. To ensure that this information is not leaked, destroyed, or falsified, the Group as a whole has established a management system and is continuously implementing measures to strengthen employee training, IT security, etc. That said, information assets may be leaked, destroyed, or falsified, or information systems may be shut down, as a result of unauthorized access, cyber attacks, internal misconduct, etc., which could result in a loss of trust and reputation, and could impact our business performance and financial position. We are appropriately managing risks by establishing a cyber security management system as an organizational measure and by promoting the introduction of technology in accordance with security policies as a technical measure.
12. Interest Rate Fluctuation Risks
The Group raises funds necessary for its business operations, but changes in capital procurement costs due to rising or falling interest rates may affect the Group's business performance and financial position. In addition to reviewing appropriate financing strategies and borrowing conditions, we are diversifying and managing risk by implementing interest rate swaps and other measures.
13. Risks Regarding Poor Governance at Overseas Bases
The Group has a sales office in Shanghai. With cases such as that, if the governance to respond to local laws, regulations, sociocultural differences, etc., is not adequately maintained, violations of said laws and regulations, corruption, fraud, mismanagement, and more may occur, resulting in a loss of trust and reputation as well as negatively impacting the Group's business performance and financial position. In addition to establishing and clarifying an appropriate organizational structure and implementing compliance programs, we are managing risk by seeking advice from external experts in order to respond to cultural and legal differences and operating transparently in a way that is adapted to the region.
14. Risks Regarding Personnel Shortages
The Group's product supply stability, competitiveness, and business performance may be affected by a decline in business capacity due to a smaller number of employees engaged in business activities such as production and sales, or by an interruption in the transfer of important technologies and know-how caused by a lack of successors. We are appropriately managing risks by properly conducting personnel activities, such as improving employee engagement and strengthening recruitment activities, and by considering investments in human capital in our medium- to long-term management strategies.
Our risk management system