Business risks

Among the matters related to situations of business and accounting, etc., major risks recognized by management as those that may have a significant impact on the financial condition, business performance, and cash flow status of a consolidated company are as described below.

Based on the recognition of the possibility of these risks, it is our policy to work to avoid them or properly respond to them if they arise. Meanwhile, please note that the matters described concerning future situations are determined by the Company as of the end of the consolidated fiscal year under review, and that they entail uncertainty and do not cover all of the investment-related risks.

Trends and unique business practices in automotive industry

Demand for our products is influenced by the sales condition of automobile-related manufacturers including Mazda Motor Corporation (hereinafter referred to as “Mazda”), our main customer.

Since sales of automobile-related manufacturers may be affected by the economic condition of the countries or regions to which their products are sold, factors such as economic trends, interest rates, and currency exchange rates in major markets (Japan, North America, Europe, Asia) may have impact on our business performance.

Meanwhile, it is a business practice in the automotive industry to accept customer request for price reduction after the start of mass production of a part by making ongoing cost reduction efforts. We have been conducting systematic rationalization and cost reduction activities and working on cost management so that our profitability will not decline even if the product price is lowered. However, requests from customers may still affect our business performance depending on the details of the request.

Dependence on specific business partners

Our main customer is Mazda, which accounted for 52.4% of our net sales of the fiscal year under review (53.8% in previous fiscal year). Therefore, Mazda’s car production and sales may affect our business performance.

Risks associated with overseas business development

To establish a foundation for sustainable growth of the Group, we are expanding businesses in East Asia (China, Korea), the ASEAN region (Thailand, Indonesia), and Central and North Americas (Mexico, the U.S.)

In expanding businesses globally, we may face the following risks in individual countries.

  1. Unexpected changes in laws or regulations
  2. Difficulty in hiring and securing human resources
  3. Strikes and other labor disputes
  4. Social confusion due to a terrorism, war, or other factors

To minimize these risks, we are working to obtain information in a timely manner from lawyers, auditing firms and other local specialists to be prepared to take prompt action. However, if these risks arise, procurement of materials or production may become difficult, or other difficulties such as suspension of sales may occur, which may affect our business performance.

Price competition

In response to intensifying price competition in the automotive industry, price competition among parts manufacturers have also been intensifying. We are endeavoring to maintain prices by adding value through technology development and other efforts while responding to various market needs, such as consideration of the environment, weight reduction, and price reduction. However, when faced by low selling prices of our competitors, we may not be able to maintain or expand sales and secure profits. Such a situation may affect our business performance.

Insufficient supply of raw materials and soaring costs of raw materials, energy, logistics, etc.

We procure raw materials and parts from many suppliers to produce our products. To ensure stable procurement, we pay careful attention to market trends of raw materials and parts while placing orders based on thorough checking of business conditions and quality management of our business partners. However, if raw materials and parts cannot be procured with stable cost and delivery timing due to raw material and energy supply instability, soaring crude oil prices and raw material, energy, and logistics costs due to tight demand condition, suspension of supply resulting from inevitable accident at the supplier, etc., it may affect our business performance.

New product development and technological capabilities

We are actively developing plastic products as alternative to metal or glass to respond to the needs from markets and customers for lighter and lower cost products, and proposing product development for weight reduction and cost reduction.

For example, for resin tailgates, we have developed a lightweight product by taking advantage of our material development technology and production technology. To be able to always provide products demanded by customers, we make full use of our cutting-edge technology development capabilities and focus efforts on reinforcing our product development and technological capabilities to improve cost competitiveness, increase product value, and propose new items for weight reduction, etc.

However, if we are unable to respond to changes in market or customer needs and fail to develop or provide attractive new products in a timely manner, it will negatively affect our future growth and profits. And also due to the burden of the invested funds, our business performance may be affected.

Intellectual property rights

We have obtained intellectual property rights, such as patents related to products and production technologies, in order to differentiate our products from those of other companies. We also conduct patent searches as necessary to prevent infringement of intellectual property rights of third parties.

If our patented product is produced in a country or region where complete protection by intellectual property rights is difficult or only limited protection is ensured, it may affect our business performance.

On the other hand, if it is judged that our product or production technology infringes intellectual property rights of a third party in the future, it may affect our business performance.

Product defects

For product quality, we perform daily control based on the ISO 9001, an international quality control standard, and our quality assurance system covering development through production. However, there is no guarantee that none of our products will have any defect leading to a product recall in the future. The defect may cause a large amount of additional costs depending on the nature of the defect.

Although we have insurance for product liability, there are some risks that cannot be covered by this insurance. A large-scale recall or a product defect leading to a product liability claim may entail a large amount of costs, which may affect our business performance.

Exchange rate fluctuations

Exchange rate fluctuations may affect our business performance, due to the following factors.

a Foreign currency denominated transactions within our transactions.
b Net sales of our overseas businesses.
c Foreign currency denominated receivables held by us with long scheduled collection periods. 

Information management

To address information security risks, we take security measures and strives to strengthen security through awareness-raising activities and education for employees. However, cyber attacks or computer viruses may cause leakage of confidential information to outside parties, loss of information, or failure of information systems, etc. If such a situation arises, it may affect our business performance.

Moreover, we are working on recovery measures such as decentralizing the installation of server machines in case our  network functions are interrupted by a natural disaster or other accidental reasons. However, depending on the scale of the damage, it may cause a delay in receiving/placing orders for products, making our production impossible. If such a situation arises, it may affect our business performance.

Recruitment and training of human resources

For global business development, we are working to recruit and train competent human resources by such means as encouraging employees to participate in language training and hiring experienced mid-career personnel. However, outflow or loss of human resources or know-how may occur due to their change of job, an unexpected accident or leave of absence. If such a situation arises, it may affect our business performance.

Retirement benefit obligations

Our retirement benefit expenses and obligations are calculated based on preconditions set for the actuarial calculation, such as the discount rate on the retirement benefit obligations and the expected return on pension assets.

However, if the actual results are different from the preconditions, it may affect our business performance in the future.

Legal regulations

We are subject to application of various laws and regulations, such as those related to global environmental protection and product safety in Japan and other countries where we are doing business. We recognize compliance with such regulations as an important management issue and have worked to enhance the compliance management by conducting compliance training for executives and employees and implementing other measures.

However, in the event of sudden revision or reinforcement of a law, additional cost may arise to ensure compliance with the new regulation. This may affect our business performance.

Climate change, natural disasters, pandemics and accidents

We conduct periodic maintenance, earthquake-proofing and other work for our production equipment to mitigate damage from disasters.

However, due to a fire, failure, or power outage of production equipment resulting from unexpected natural disaster, outbreak of an infectious disease, an unforeseen accident or other incident may cause a delay or suspension of production or delivery. In particular, since many of our plants and suppliers in Japan are located in the Chugoku region, if a large-scale disaster occurs in this region, it may affect our business performance.

Impact of COVID-19

Due to the impact of COVID-19, the sales volume of Japanese car manufacturers, including our main customer, has declined, leading to a decrease in our sales. This, along with the measures to prevent the spread of infection, may contribute to worsening our profits. If the impact of COVID-19 is prolonged, additional costs may further impact our profits.