Business Risks

(Excerpt from the Securities Report from the 180th Term)

Risks that could affect the Group's operating results and financial position (including the stock price) are described below.
The forward-looking statements below are an assessment of the Group as of the end of the fiscal year.

(1) Risks related to economic trends

The Group's main products, including electronic materials, packaging materials, and printing ink, tend to be affected by general consumption trends. The Group is striving to build an earnings structure that is less vulnerable to economic trends through greater business development in countries around the world, building an SCM system and promoting the development and sale of highly functional products mainly in the energy and life science fields. The Group is also working to reduce costs across the board, from total fixed costs such as personnel and other overhead expenses to variable costs such as raw material expenses. However, a decline in consumer demand or a fall in sales prices in the future could negatively affect the performance of the Group.

(2) Risks related to the sourcing of raw materials

The main raw materials for products that the Group manufactures are petrochemical products, and the purchase prices of petrochemical products are significantly affected by changes in the oil and naphtha markets. Rises in purchase prices and difficulties in sourcing caused by changes in the supply-demand balance resulting from rises in oil and naphtha markets due to political climates and international speculation could lower the Group's sales and profits.

(3) Risks related to exchange rate fluctuations

The Group operates overseas and the yen equivalents of financial statement items for overseas consolidated subsidiaries are affected by exchange rates. Drastic fluctuations in exchange rates could adversely affect the Group's results although we are taking steps to reduce forex fluctuation risks, including exchange forward contracts for foreign currency transactions.

(4) Risks related to general legal restrictions

The Group's operations in Japan and overseas are subject to general legal restrictions. To comply with general legal restrictions, the Company operates the CSR Promotion Committee, Risk Management Committee, Compliance Committee, and Environment and Safety Committee under the CSR Generalization Committee. Meanwhile, the Company is developing and operating an internal control system for proper financial reporting. However, there is not any guarantee that litigation or other legal procedures will not occur which could have a great effect on the Group's operations in association with environmental issues, product liability, and patent infringement, among other issues, related to the Group's domestic and overseas operations. Litigation and other legal procedures could adversely affect the Group's operating results and financial position depending on the amounts claimed in litigation, along with other factors.

(5) Risks of information leakage, loss or damage

The Group holds confidential information associated with its operations, including confidential information of the Group, business connections and personal information. Most of the confidential information is stored and used as electronic information, however, the risk of information leakage, loss or damage due to computer viruses and security violations in networks, especially on the Internet, is on the rise. The Group has been taking all possible steps in fortifying its information system and has established the Information Security Office to mitigate risk by strengthening information management and providing employee training. Information leakage, loss or damage due to unforeseen circumstances, nonetheless, could lead to loss of social trust, a breach of a non-disclosure agreement, or a decline in competitiveness due to an outflow or loss of expertise of the Group.

(6) Risks related to common debt collection

The Group delivers its products to a number of customers in a range of industries in Japan and overseas and may not be able to collect trade receivables and other claims, including loans to customers associated with transactions, depending on the customers' financial condition. The Group has posted a non-recoverable amount as an allowance and is enhancing credit management to have less bad debts in the future. However, a more-than-expected non-recoverable amount could adversely affect the Group's operating results and financial position.

(7) Risks related to overseas operations

The Group conducts production and sales activities both in Japan and overseas and will expand further into overseas growth markets. Expansion into overseas markets involves certain risks as described below. These risks could adversely affect the Group's operating results and financial position.

  • Unexpected changes in laws and regulations and changes in tax systems that could have adverse effects
  • The adverse effect of inadequate social common capital (infrastructure) on the Group's operations
  • Unfavorable political factors
  • Social turmoil caused by terrorism, war, or infectious disease
  • Unexpected rapid changes in the work environment

(8) Risks related to disasters and epidemics

Assuming inevitable business interruption risks, including natural disasters such as large earthquakes and new strains of influenza (pandemics), the Group is developing a business continuity system by putting together emergency response manuals and regularly providing practical training. However, a more-than-expected expansion of devastation, or prolongation of damage could cause harm to assets, including buildings and production facilities, limits to the use of electricity and water, difficulty in the sourcing of raw materials, stalled distribution, and even the inability of employees' to come into work. All of which could lead to a reduction in supply capacity and could adversely affect the Group's operating results and financial position.

(9) Risks of environmental burdens

The Group is subject to various environmental laws and regulations in Japan and overseas concerning waste, noise and vibrations, soil contaminations, polychlorinated biphenyls used in electrical equipments, and emissions to the air and public water bodies that are generated in the manufacturing process, as well as regulations concerning the use of freon in refrigeration and air-conditioning installations. The Group complies with these regulations, and while the Group is working to reduce energy consumption, industrial waste, and water consumption, expenses may be incurred in connection with additional environmental compliance or remediation obligations in the future, and thereby have an impact on the Group's performance, etc.
The Group's principal business is the manufacture of chemicals, and the raw materials and products associated with this business include a number of dangerous substances and chemical materials. As part of the Group's CSR management, the Environment and Safety Committee under the CSR Generalization Committee is actively leading efforts to prevent fires and other accidents and reduce the environmental burden. The Group has also taken every step possible to avoid the assumed risks associated with the use of chemicals. However, in regards to unforeseen circumstances, such as a fire, leakage, and soil or groundwater contamination stemming from past actions before the corresponding environmental laws were developed, the event may cause a decline in the Group's production capacity, a loss of trust from society, or the incurrence of expenditures for cleaning and addressing the pollution of the soil or underground water.