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. Risk of Technological Innovation
Existing products such as electronic material products, functional material products, and silicon wafer products may become obsolete, because in addition to the speed of technological innovation and rapid changes in market needs, there is strong downward pressure on selling prices. The Group's basic strategy is to meet customer demands as much as possible and operate production facilities stably, so we have no choice but to accept some degree of downward pressure on prices. While we are constantly striving to reduce costs, profits tend to decline in the long term as long as we continue to manufacture and sell the same products. To address this, we will work to maintain and improve our profit level by expanding our product lineup and introducing new products to the market. However, if needs change too rapidly, the Group's performance and financial position may be affected.
2. Risk of Market Trend Fluctuations
The Group's bottling business may be greatly affected by weather conditions and the sales strategies of brand companies, which must respond to diversifying consumer beverage preferences. In this business segment, we will strive to secure stable orders by strengthening relationships with brand companies, but fluctuations in sales volume due to the weather and other factors are unavoidable, and this may have a significant impact on the Group's performance and financial position.
3. Risk of Raw Material Procurement and Price Fluctuations
The Group's basic strategy for raw materials procurement is to purchase from multiple sources, as we are striving for stable procurement. If we are unable to pass fluctuations in raw material prices onto product prices, the Group's performance and financial position may be affected. In recent years, the deteriorating situation in Russia and Ukraine has created a major risk to energy supply, and we recognize this as a serious risk factor. Fluctuations in fuel oil and LNG prices have an impact on fuel costs in the bottling business, as well as manufacturing in the chemical products business, in which we use a considerable amount of electricity, so the Group's performance and financial position may be affected.
4. Risk of Exchange Rate Fluctuations
Although the Group conducts sales activities centered on domestic sales, we procure some of the raw materials from imported ones as part of cost reduction in order to strengthen the price competitiveness of our products. Therefore, stable procurement may be affected by exchange rate fluctuations, overseas political situations, overseas logistics conditions, etc. In addition, overseas business and export-related transactions may be affected by sudden fluctuations in foreign exchange rates. To address this, we have taken measures to minimize the impact of fluctuations as much as possible, such as diversifying procurement risks through multiple purchases and fixing purchase prices in advance through exchange contracts. Given the rapid depreciation of the yen in recent years, we will keep this in mind as an important item to monitor.
5. Risk of Accidents and Disasters
In its chemical products business, the Group handles many dangerous substances such as explosives and chlorates and takes maximum safety measures against accidents and disasters. While the probability of a serious accident happening is extremely low, in the unlikely event that a major accident or disaster does happen, damage to facilities, suspension of business activities and other factors may have a material impact on the Group's performance and financial position. We conduct regular patrols in our plants in order to prevent accidents, and we take measures to minimize damage by strengthening fire extinguishing drills in preparation for disasters.
6. Risk Related to Quality
The Group's business is highly diverse, and we require a quality control system that matches the business of each company. Each Group company builds and operates an integrated quality control system that covers procurement of raw materials, manufacturing and shipping. However, in the event of product quality problems due to unforeseen circumstances, the credibility of not only the company concerned but the entire Group may decline. In addition, the costs associated with product recall, rework, delivery of substitute products, and manufacturing may have a considerable impact on the Group's performance and financial position. In the Group, we share information among quality personnel from the stage when there are signs, before it becomes a major quality problem. We then consider and implement countermeasures while referring to the perspectives of different industries, and work to improve our quality control systems by horizontally deploying to each Group company.
7. Legal and Regulatory Risk
Due to the nature of its business, the Group is subject to laws and regulations related to the handling of chemical substances. Due to the growing awareness of environmental issues, regulations targeting chemical substances tend to be increasingly strong. If there is any disruption to the manufacturing and sales of the subject products, the Group's performance and financial position may be affected. We always closely follow legal and regulatory revisions related to environmental issues, chemical substances, exports, etc. and conduct proper business operations while ensuring thorough compliance.
8. Litigation Risk
The Group may be subject to lawsuits, disputes, or other legal proceedings regarding its business activities or intellectual property rights, and the Group's performance and financial position may be affected by the filing of an important lawsuit or the like. We are working to reduce risk through inspections by the department in charge at the time of contract conclusion and transaction start, and through appropriate initial response in the event of trouble.
9. Risk of Asset Valuation Fluctuations
The Group owns marketable securities. If the stock market crashes dramatically or if the recoverable amount of fixed assets is measured and found to be less than the book value, the Group's performance and financial position may be affected by these asset valuations.
10. Risk Related to Pandemics
The Group conducts a wide range of businesses, mainly in Japan. Problems caused by pandemics, such as stagnation of economic activities and logistics, delays in public and private sector works, and the postponement and cancellation of fireworks festivals, may have a negative impact on the Group's performance. However, changes in people's lifestyles may have a positive impact on the Group's performance due to factors such as the growth of the semiconductor and electronic parts markets. Although the COVID-19 pandemic is settling down, there are concerns about the occurrence of new pandemics in the future. We will continue to promote IT and work style reforms, including the promotion of remote work, while placing first priority on maintaining supply responsibility for the supply chain.
11. Risk Due to Natural Disasters, etc.
The Group's business bases are distributed mainly in Japan. In the event of a major earthquake, tsunami, typhoon, heavy rain, or other natural disaster, the Group's production facilities and human resources may be affected or damaged, and customer demand trends may change significantly.
12. Risk Related to Information Security
The Group possesses various information such as the confidential information of customers and business partners, as well as information on development, production, sales, accounting, corporate strategy, etc. In order to prevent these information from being leaked, destroyed, or falsified, the entire Group has built a management system, and is continuously implementing measures to strengthen employee education and IT security. However, it is possible that these information may be leaked, destroyed, falsified, or the information system may be stopped due to external attacks using technology that cannot be countered, internal negligence, theft, natural disasters, accidents, etc. In such an event, the Group's credibility may decline, and we may incur costs such as compensation for damages and the suspension of operations, which may have an impact on the Group's performance and financial position.
13. Risk of Interest Rate Fluctuations
The Group raises funds necessary for business operations. If interest rates rise, the Group's performance and financial position may be affected.
14. Risk of Poor Governance at Overseas Bases
The Group has a sales base in Shanghai. If governance is conducted poorly to respond to local laws and regulations, social and cultural differences, etc., there may be violations of laws and regulations, corruption, fraud, or wrong management decisions, which may have an impact on the Group's performance and financial position. We are working to build a highly transparent management system by securing human resources to maintain the appropriateness of operations, requesting regular reports on the status of business execution and financial status, and conducting operational audits.
Our risk management system