Risks

Changes in Economic Conditions

As the Group's main products are automotive parts and construction machinery parts, operating income is affected by economic conditions in the countries and regions that directly and indirectly supply products. As a result, we are striving to collect and analyze relevant information, and to reflect our findings in business plans, such as the annual and medium-term business plans. Nonetheless, a recession in the Group's key markets, which include Japan, North America, Europe, and Asia, and an accompanying decline in demand that exceeds forecasts, could adversely affect the Group's business performance and financial position.

Changes in Overseas Business Environment

The Group conducts production and sales activities in Japan, North America, Europe, and Asia, and the ratio of overseas sales has reached approximately 50%, on a consolidated basis. The occurrence of one or more of the following risks at our overseas businesses could adversely affect the Group's business performance and financial position:

• political or economy instability and social turmoil such as war, terrorism, radical protests, riots, and strikes
• unexpected changes in laws, regulations, and taxes
• labor disputes, rapid rise in personnel costs, and difficulty securing and recruiting human resources
• large-scale natural disasters, and transmittable and infectious diseases
• changes in management policy and business environment, etc. in joint ventures

Exchange Rate Fluctuations

When preparing the consolidated financial statements, financial statements of the Group's overseas affiliates are presented in local currencies and then converted into yen. The exchange rate at the time of conversion could adversely affect the Group's business performance and financial position.

Securing and Developing Human Resources

To maintain and improve competitiveness within our industry, and to strengthen global business activities, the Group recognizes the extreme importance for the future of securing and developing human resources with specialized and excellent management skills. For this reason, we are taking actions, including active recruitment in Japan and overseas, and we are improving training and education as part of our Medium-Term Business Plan strategies of passing on skills and using diverse human resources. Nonetheless, delays in securing and developing human resources within the Group could adversely affect the Group's future business development.

Technology and Product Development

In line with the introduction of next-generation CASE-related (connected, automated, shared, electric) technologies, such as electrification and autonomous driving, the entire automobile industry, including parts manufacturers, is entering a period of major transformation. For this reason, the Group aims to grow the global business based on the corporate vision “To be the world's No. 1 manufacturer of our core products.” In addition, in our Medium-Term Business Plan we set the goal of boosting product appeal and reinforcing competitiveness. For this reason, we are “leading products and high competitiveness” investing management resources in technological innovation and new product development in anticipation of future needs. Nonetheless, if our response to market and customer needs is not effective or not as timely as required, this could adversely affect the Group's business performance and financial position.

climate change

The Group has positioned addressing climate change risk as a key management issue, and has set an interim target of reducing CO2 emissions (scope 1,2*) by 41.0% from the fiscal 2019 level by fiscal 2030, with the aim of achieving carbon neutrality by fiscal 2050. We are working to achieve this target.
Specifically, we will accelerate thorough energy-saving activities (reduction of standby power, etc.), upgrading to high-efficiency facilities, reorganization of production lines, and introduction of renewable energy.
In addition, we have conducted scenario analysis in line with the TCFD (Task Force on Climate-related Financial Disclosure) to identify risks and opportunities associated with climate change, and we will respond to these risks as opportunities for further growth by strengthening our efforts in product weight reduction, new product development, and technological development of new technologies and new construction methods to meet new market needs in a decarbonized society. We will respond to new market needs in a decarbonized society.
However, the Group’s business performance and financial position could be adversely affected if it fails to respond appropriately to the physical risks arising from climate change and the risks associated with the transition to a decarbonized society.

Scope1：Direct emissions of greenhouse gases by businesses themselves (fuel combustion, industrial processes)
Scope2：Indirect emissions from the use of electricity, heat, and steam supplied by other companies

Impact of Natural Disasters, etc.

To minimize the impact of natural disasters and large-scale infectious diseases on production, the Group will implement training based on a business continuity plan (BCP) and consistently take actions based on government guidelines. We are also promoting risk prevention and awareness. Nonetheless, a large-scale natural disaster of an unexpected magnitude could cause damage to or the collapse of buildings and equipment as well as disrupt the physical and information infrastructures, supply chains, and transportation routes. This could have a serious impact on human resources, which might significantly reduce production capacity and interrupt operations. In these cases, delays in product supply to customers and the large costs required to repair damaged buildings and equipment could adversely affect the Group's business performance and financial position.

Materials and Parts Procurement

The Group purchases many of the materials and parts necessary for business activities from suppliers outside the Group. Therefore, there are concerns that raw materials and parts could be in short supply and costs could rise due to delivery delays from certain suppliers, and over product defects, deterioration of business conditions, and unexpected accidents and natural disasters. We are making every effort to counter this risk based on our procurement policy, such as securing multiple suppliers and prompt recovery support. Nonetheless, such factors as a significant increase in costs and suspension of production could adversely affect the Group's business performance and financial position.

Product Defects

The Group manufactures products based on internationally recognized quality control standards. We strive to ensure stable product quality and make improvements, and have introduced a quality control system that has been inspected by a third party. However, this does not guarantee that all products will be free of defects or that there will be no product recalls in the future. In addition, although we are insured against product liability claims, the insurance may not completely cover all eventual damages. For this reason, a product defect that leads to a recall or liability compensation could result in hefty costs and a loss of social credibility, which in turn could significantly impact the Group's standing and could adversely affect the Group's business performance and financial position.

Information Security

The Group holds confidential sales and technical information, including information from customers and its own development information. In addition, the Group utilizes information technology and networks in its overall business activities, including production activities. The Group is strengthening its incident detection and response capabilities by expanding the scope of threat monitoring and analysis of networks and servers, etc., to prevent cyber attacks and their incidents and accidents, as well as strengthening its security measures infrastructure to respond to the increasing use of telework and cloud services, We are also working to enhance our security infrastructure and education to respond to the increasing use of telework and cloud services. However, in the event of unforeseen circumstances caused by cyber attacks, which are becoming more sophisticated and sophisticated every day, the Group’s business performance and financial position could be adversely affected due to loss of public trust and liability for damages caused by information leaks, costs for restoration, and suspension of operations involving customers and procurement sources as a whole due to system downtime. This could have a negative impact on the Group’s operating results and financial position.

Compliance with Corporate Ethics

Employees of our Group must comply with all laws and regulations in such areas as labor relations, antitrust, information management, intellectual property protection, environmental preservation, correct accounting and tax treatment, and preventing insider trading. Accordingly, we established the Code of Ethics as well as rules and etiquette to be followed as a Company-wide code of conduct as well as an approach as a responsible business that we adhere to. We strive to ensure that operations comply with corporate ethics and we make every effort to raise awareness of good corporate behavior. Further, we have established internal and external consultation desks for compliance and for preventing harassment, and we respond correctly and quickly to all transgressions. Nonetheless, if an employee violates the law or causes some other problem, this could lead to tangible and intangible damage, such as an increase in direct costs, social sanctions, or harm due to misinformation, which could adversely affect the smooth running of our business as a result of a loss in the Group's social credibility.

Impact of large-scale infectious disease outbreaks, etc.

The Group has implemented thorough hygiene management to prevent the spread of large-scale infectious diseases such as new coronavirus infection, and labor management that permits and encourages flexible work styles such as telecommuting, flexible work hours, and staggered work hours. However, once a large-scale spread of infection occurs in Japan or overseas, lockdowns and other out-of-home measures may cause significant restrictions on the economy and daily life, which may have a significant impact on our business activities, and our group’s business performance and financial position may be severely affected.