March 25, 2020
Principal risks relevant to the business activities of the Group and deemed significant are as follows.
Note that the risks regarding future contents included in the matters described below were based on the judgment of the Company as of the end of the current consolidated fiscal year.
1. Risks relevant to the economy and markets
The Group's businesses are directly or indirectly related to a number of industries, including automobile, construction machinery, railroad, construction and industrial machinery, in Japan and overseas. Market fluctuations and trends in capital expenditure in these industries may affect the operating results and financial position of the Group.
2. Risks relevant to overseas operations
In pursuit of further growth and profitability, the Group actively conducts business mainly in Asia, North America and Europe. Therefore, the Group is subject not only to economic and market risks but also to political turmoil and unforeseeable amendments to laws and regulations in various countries, which may affect the markets for particular products. Such events are likely to impact operating results of the Group.
3. Risks relevant to large-scale disasters
With the aim of minimizing damage and loss arising from disasters such as typhoons, earthquakes, floods and pandemics, the Group has implemented the formulation of a business continuity plan along with the establishment of an emergency contact system, and has also conducted drills. However, business activities of the Group that center on production may be affected by the occurrence of disasters causing human casualties and physical damage, stagnation in procurement of materials, and disruption of distribution networks. Furthermore, there is no guarantee that any loss from disasters will be fully covered by property and/or other insurance.
4. Risks relevant to exchange rate fluctuations
The Group's overseas sales have been increasing every year. The Group also relies on imports of raw materials from overseas and, though it hedges its risks in foreign currency-denominated transactions through forward-exchange contracts, the Group's performance is nonetheless affected by exchange rate fluctuations. The performance of overseas subsidiaries is also impacted by exchange rate fluctuations when converting to Japanese yen.
5. Risks relevant to procurement
The Group ensures stable procurement by purchasing raw materials and components from multiple sources. However, if the prices of raw materials surge, or the supply of certain components becomes disrupted and alternate suppliers cannot be found, the Group’s operating results and financial position may be affected by lower profit margins on products or by opportunity loss.
6. Risks relevant to product quality
The Group manufactures a full lineup of products in line with carefully designed quality control standards to prevent defects. However, in case of significant product defects leading to a recall or product liability issues occurring, the potentially massive costs arising from such a situation could adversely impact the Group's performance and financial standing.
7. Risks relevant to competition
The Group has a wide lineup of products with high market shares in the domestic and overseas markets. If the market shares of its products were to fall, the Group's performance and financial standing could be adversely impacted.
8. Risks relevant to information security
The Group obtains personal information and confidential information of its customers and trading partners through business activities, and holds confidential information of its business and technologies. The Group implements the enhancement of control systems and employee education for the management of such information, and takes appropriate security measures, including both the hardware and software of information systems. However, in the event of a leakage of information, or destruction or falsification of important data, or system halt due to the unexpected levels of cyber attacks, unauthorized access, or intrusion of computer viruses, etc., the Group’s credibility could suffer or its business performance and financial position could be adversely impacted.
9. Risks relevant to intellectual property
The Group protects internally developed technologies under intellectual property rights, including patents, and holds such intellectual property rights under strict management, while paying close attention not to infringe the intellectual property rights of third parties. If, however, a third party infringes the intellectual property rights of the Group, or the Group faces any infringement alleged by a third party, the Group’s business performance and financial position could be adversely affected.
10. Risks relevant to laws, ordinances and regulations
The Group operates its businesses globally, and is subject to the laws and regulations of the relevant countries and regions. In addition to thorough compliance with laws and regulations relating to its businesses, the Company has established a Code of Corporate Ethics of an even higher standard to reinforce its compliance system. Despite these intense efforts, however, it is impossible to completely eliminate risks concerning compliance, including individual illegal acts. In case of a material violation against laws and regulations, the Group’s business performance and financial position could be adversely affected.
11. Risks relevant to environment
Recognizing the impacts of business activities on the global environment, the Group exerts efforts to improve energy efficiency, save resources, reduce hazardous substances and raise recycling efficiency in planning, developing, and designing its products. Furthermore, in manufacturing, selling, and distributing products, and providing services, the Group strives to cut down environmental burdens by positively introducing and applying advanced environmental technologies in pursuit of the reduction of CO2 emissions, effective use of resources, and challenges to zero emission. However, in the case of environmental pollution caused by the Group’s business activities, the Group’s business performance and financial position could be adversely affected due to decontamination costs and compensation for damage, etc. and the loss of credibility.
12. Risks relevant to company acquisitions
The Group seeks to enhance the production system for its products in Japan and overseas, its sales and service systems, and its technology platform through company acquisitions. However, if the effects that were expected at the time of the acquisition cannot be gained in the future, the Group’s operating results may be affected.
13. Risks relevant to impairment of non-current assets
The Group owns non-current assets such as property, plant and equipment, goodwill and intangible assets. In the event that profitability drops due to rapid changes in the business environment or other circumstances, and it is deemed that sufficient cash flows cannot be generated, the Group’s operating results and financial position may be affected due to the recording of an impairment loss on the relevant assets.
14. Risks relevant to recruiting human resources
The Group seeks to promote global business activities and maintain and improve its competitiveness by recruiting and developing a broad range of human resources with competence in manufacturing, development, sales and other specialized fields. However, failure to recruit and develop a sufficient number of personnel due to intensified competition over human resources and the retirement of employees may lead to a drop in competitiveness, affecting the Group’s operating results and financial position.