Business Risks
The business performance and financial condition of the Group are expected to be affected by a variety of risks described below. Given the potential for those business risks, the Group is striving to avoid and handle the risk when it occurs. This section contains the forward-looking statements made at the decision and assumption of the Group as of the end of fiscal 2022.
1. Risks related to legal restrictions and system and governmental actions
The Group’s businesses are subject to legal restrictions (including deregulations) under the Pharmaceutical and Medical Device Act and related laws and regulations. Any future changes in those restrictions may have an impact on the Group’s business results and financial condition.
2. Risks associated with overseas expansion
As the Group has expanded businesses globally, in recent years the share of overseas sales has reached certain levels (for fiscal 2022, overseas sales accounted for 43.5% of consolidated net sales). As a result, the unexpected deterioration of the political or economic situation, or changes in the laws and regulations in any country or region may have an impact on the Group’s business results and financial condition.
3. Risks associated with the reliance on specific client companies
Currently, the top three client companies account for 35.3% of the volume of the Group’s business. This fact shows that, if the Company suffers the loss of bad debts due to the financial difficulty, bankruptcy or a similar situation of any of those client companies, it may have an impact on the Group’s business results and financial condition.
4. Risks associated with the dissolution of a business alliance with other companies
The Group has built business alliances with other companies in various ways, such as joint development, joint distribution, and the introduction of products (including the manufacturing and distribution of products under a license agreement). Accordingly, if such an alliance is dissolved for any reason in the future, it may have an impact on the Group’s business results and financial condition.
5. Risks associated with business investment
To expand existing businesses and pursue new business development, as necessary, the Group will enhance existing business alliances or form a new partnership within the Group and with other non-affiliated companies. For that purpose, the Group has established and may establish new companies jointly with other entities; also, it has conducted and may conduct investment activities, such as investing in existing corporations. Accordingly, if the corporate value or the market price of the stock or the like of any portfolio company declines, it may have an impact on the Group’s business results and financial condition.
6. Risks associated with discontinuation of distribution and recall of
products
If any of the Group’s products have trouble, such as a defect, unexpected side-effect, and the inclusion of foreign materials, the Group is likely to be required to stop or end the distribution or recall them. It may have an impact on the Group’s business results and financial condition.
7. Risks related to intellectual property rights and litigation
If the Group fails to protect its intellectual property rights adequately, the competing power of the Group may be affected by the exploitation of the Group’s technology and know-how by third parties. The Group intends not to infringe on a third party’s intellectual property right with the utmost attention and conducts research regarding the same. Nevertheless, in the event of infringement on a third party’s intellectual property right, the third party is likely to file a claim for damages or another legal proceeding against the Group; or the Group may be required to pay a certain amount of consideration or to make similar performance. Those factors may have an impact on the Group’s business results and financial condition. Other than the intellectual property right-related action, the Group is exposed to litigation risk relating to product liability, environmental issues, and other matters. Accordingly, in some cases, the substance or the outcome of the litigation may have an impact on the Group’s business results and financial condition.
8. Risks related to the information system and information management
As the Group conducts business activities by using various information systems, the suspension or the malfunction of any system may interfere with the efficient operation of the business. Also, retaining a vast amount of information, including personal information, the Group is striving to establish its internal control structure and enhance information management. However, if any information leak occurs, the loss of public confidence may have an impact on the Group’s business results and financial condition.
9. Risks associated with natural and other disasters
The Group manufactures main products to be distributed domestically at the Osaka Plant, the Ueno Plant, etc. and ships them out from the Central Distribution Center or elsewhere. The Group has taken great care to the safety control; nevertheless, if the operation of such factories and distribution center is shut down because of fire, earthquake, or other disasters, it may have an impact on the Group’s business results and financial condition.
10. Risks associated with the fluctuation of the foreign exchange rate,
stock price, and interest
As the Group has been expanding its businesses globally, the fluctuation of the foreign exchange rate may have an impact on the Group’s business results and financial condition. The Group also holds securities with market value and interest-bearing liabilities; thus, the fluctuation or trend of stock price and interest may have an impact on the Group’s business results and financial condition.
11. Risks associated with addressing climate change and other societal challenges
Climate change impacts are expected to cause raw material and fuel prices to continue rising, which may lead to increased cost of sales. The Group’s businesses are also susceptible to changes in consumer and customer needs. Thus, if customer needs for sustainability increase, rises in development costs to provide more sustainable products and services may have an impact on the Group’s business results.
12. Risks related to other external factors
The amount of shipments and returns of products fluctuates due to seasonal factors, such as cold summer, warm winter, pollen dispersion, and the like. Also, the market price of products may fall unexpectedly in a harsh competitive environment. Those factors may have an impact on the Group’s business results and financial condition.
Note: There are various other business risks. Thus, the above is not an exhaustive list of risks that may affect the Group.