Business Risks
The main risks that may affect the business performance and financial position of the Group are as follows. The Group recognizes the possibility of these risks occurring and has a policy of working to prevent them from occurring and to respond if they do occur.
This section contains forward-looking statements, but these statements are based on judgments made as of the end of the current consolidated fiscal year.
1. Production, Procurement, and Supply Chain
Our group supplies products through manufacturing bases in Japan and overseas, external contractors, raw material and supply suppliers, and logistics networks. In the event of natural disasters, accidents, pandemics, geopolitical risks, soaring raw material and energy prices, or shutdowns of operations in key supply chains, the stable supply of products may be affected. Furthermore, if our manufacturing and distribution bases are disrupted, it may affect our business performance and financial condition due to lost sales opportunities, alternative procurement costs, and recovery expenses.
2. Quality/Product Safety
Our group handles products related to people's health and lives, such as pharmaceuticals, cosmetics, and functional foods, and we consider ensuring quality and safety to be a crucial management issue. However, if some of our products and services experience product defects, unexpected side effects, foreign matter contamination, inappropriate representations in labeling or advertising, or quality control problems, it could lead to sales suspension, product recall, administrative penalties, compensation for damages, and damage to brand value. As a result, lost sales opportunities, recall and response costs, and a decline in social credibility could affect our business performance and financial condition.
3. Overseas business development
Our group operates globally, with overseas sales accounting for 51.0% of consolidated sales. While overseas markets are important to our group's growth strategy, deterioration of political and economic conditions in each country and region, changes in laws and regulations and administrative practices, exchange rate fluctuations, conflicts and deteriorating public safety, infectious disease outbreaks, differences in business practices, etc., may disrupt sales activities, production and procurement, and investment recovery. If these events occur, they may affect our group's performance and financial condition.
4. Market Environment and Competitive Environment
The competitive environment in the markets in which our group operates is likely to change significantly due to shifts in consumer needs, price competition, new entrants, technological innovation, and changes in distribution structures. If we are unable to implement appropriate product development, marketing, and pricing policies in response to these changes in the market environment, it could affect our business performance and financial condition through factors such as decreased sales, reduced profitability, and impacts on inventory valuation.
5. Business investmentｓ
Our group promotes science-based research and development and technological innovation in each of our business areas. We invest in research to strengthen our competitiveness in the medium to long term, but there may be cases where we do not achieve the expected results, or where products and technologies under development do not reach market due to issues such as effectiveness, safety, quality, or regulatory compliance. In addition, we may make capital investments, M&A, investments, joint development, licensing agreements, and business alliances with other companies with the aim of expanding existing businesses, creating new businesses, and strengthening our technological and product capabilities, but if we do not achieve the expected results or synergies, we may incur investment losses, impairment losses, development delays, or lost sales opportunities. These may have an impact on our business performance and financial condition.
6. Changes in legal regulations and systems
Our group's business is subject to various domestic and international laws and regulations, including the Pharmaceuticals and Medical Devices Act, food-related laws and regulations, the Premiums and Representations Act, the Antimonopoly Act, the Personal Information Protection Act, environmental laws and regulations, and import and export regulations in various countries and regions. If these related laws and regulations are changed (including deregulation), it may restrict our product development, manufacturing, sales, and marketing activities. In addition, increased costs for compliance with regulations and lost sales opportunities may affect our business performance and financial condition.
7. Compliance, Intellectual Property, and Litigation
Our group strives to comply with laws and regulations, uphold corporate ethics, and protect intellectual property rights in our business activities. However, if violations of laws and regulations, bribery, embezzlement, fraudulent accounting, human rights violations, environmental pollution, etc., occur by our officers, employees, group companies, or business partners, it may lead to administrative penalties, damage claims, suspension of business transactions, and a decline in social credibility. Furthermore, if our group's intellectual property rights are not adequately protected, or if we are found to have infringed the intellectual property rights of a third party, it may result in a decline in competitiveness, damage claims, and compensation payments. In addition, depending on the content and outcome of lawsuits concerning product liability, the environment, transactions, labor, etc., it may affect our business performance and financial condition.
8. Climate Change and the Environment
Our group recognizes that addressing climate change, improving the efficiency of resource and energy use, and complying with environmental laws and regulations are important issues in conducting our business activities. If natural disasters become more severe due to climate change, raw material and energy prices rise, environmental regulations are strengthened, new systems such as carbon taxes are introduced, or environmental awareness among consumers and business partners changes, it may restrict our procurement, production, logistics, and sales activities. Furthermore, abnormal weather patterns such as cool summers or warm winters, and fluctuations in pollen levels may increase or decrease shipments and returns. In addition, if our environmental response is deemed insufficient, it could lead to a decline in social credibility and brand value. These factors could potentially affect our business performance and financial condition.
9. Information Security and Information Management
Our group utilizes various information systems in our business activities and holds personal and confidential information concerning customers, business partners, employees, etc. Cyberattacks, unauthorized access, system failures, natural disasters, human error, and inadequate management by our contractors may cause system downtime, information leaks, data tampering, and business interruptions. If these events occur, recovery costs, compensation for damages, administrative responses, and damage to social credibility may affect our business performance and financial condition.
10.Secure and utilize human capital
Our group recognizes that securing, developing, and empowering diverse talent, improving organizational capabilities, and passing on our corporate culture are crucial challenges for sustainable growth. However, due to factors such as a declining birthrate and aging population, increased labor market fluidity, and intensified competition for talent, we may not be able to secure and develop the necessary personnel for research and development, manufacturing, quality assurance, overseas business, and digital domains as planned. Furthermore, insufficient responses to issues such as the working environment, safety and health, and employee engagement could lead to decreased productivity and organizational strength, as well as employee turnover, potentially impacting our business activities and performance.
For information on risk management, please see here.