Major Risk factors that Management recognizes and that may affect the Group's business results, financial position, cash flows and other performance indicators are described below. The Group is endeavoring to avert these risks and to reduce potential risks by hedging and diversifying. However, an unforeseen situation may have considerable influence on the Group's business performance. Any future forecasts included in the following descriptions are based on the estimates or judgment of the Group as at March, 2020.
Risks related to Sales activities
The Group conducts SPE business and Metrology business among Japan, Europe, US and Asia on a global scale. If the supply-demand balance is disturbed or economic conditions unexpectedly deteriorate in the markets of each area, the Group's business results may be influenced.
In principle, the overseas sales are made on a Japanese Yen basis. However, transactions are carried out in US dollars or Euro for some customers. In addition, financial statements from each overseas consolidated subsidiary to make the Groups’ Financial Statement are made in a regional currency basis. Therefore, in the event of unforeseen exchange rate fluctuations are realized, the Group's business results may be influenced.
Some of the products that the Group provides are controlled under Japanese export regulations and various approvals are mandatory for export. Therefore, if such regulations and/or the scope of controls on products change, the Groups’ business results may be influenced.
The Group’s overseas sales exceed sales in Japan. Therefore, if trade conflict between Japan and in a third country or in between third countries arises, the Groups’ business results may be influenced.
Risks related to Manufacturing and R&D activities
New technologies are developed on nearly a daily basis in the business areas of the Group. Developing state-of-the-art technologies and providing new products is essential in maintaining and strengthening the Group's competitiveness. However, if these research and development activities were to be unsuccessful, the Groups’ business results may be influenced.
In order to minimize damage caused by a possible interruption of production activities, the Group regularly conducts disaster prevention inspections, production facility maintenance, investment to secure the safety of facilities, and preparation for alternative production in the Group based on a Business Continuity Plan. Nevertheless, a sudden accident could damage production facilities or interrupt operations and the Group’s business results may be influenced.
To commit customer required delivery date, the Group regularly maintains sufficient manufacturing space, invests for floor space expansion, maintains safety inventories, and arranges engineers for timely manner roll-in and installation of the products. However, if entire demands toward the products unexpectedly increase to materialize shortages among floor space, inventories and/or engineers, then interruption of production activities may occur and the Group’s business results may be influenced.
It is essential for our production activities to procure high quality materials and services in a timely and proper manner from outside parties. Although the Group operates under a multiple source procurement system, the Group's business performance could be impacted due to the shortage of supply or delivery delays because some of the specific components can only be procured by some limited suppliers or it may become very difficult to change suppliers due to the peculiarity. Also, the surge of materials and service prices from the change of supply-demand could affect the Group's business performance.
The Group gives priority to improving quality and reliability of both its products and service activities. However, if an unexpected quality-related failure should occur, the expenditure to remedy such an issue might impact the Group's business performance.
A rise of raw materials prices and/or service fees related to Manufacturing or Sales activities may affect the Group’s results.
Risks related to Intellectual property rights
The Group's products embody cutting edge technologies. Particular attention is paid to the protection of rights related to these technologies. Specifically, the Group has taken measures to defend its interest with regard to such matters as attribution of patent-related rights and protection of trademarks and brands. However, if a lawsuit or other legal dispute with a third party in Japan or overseas were to arise concerning rights, the Group's business performance could be affected.
Risks related to Information security
The Group acquires customer confidential information or personal information, and the Group's confidential information related to technologies, sales and other business matters. Based on the Groups’ “Information Security Control Rules”, the Group pays special attention to this confidential information to prevent the leak of information and falsification. However, it could be possible to have information leak or falsification due to unforeseen events such as errors, information theft or outside attack. The Group's business performance could be impacted if those unforeseen events occur and the Group incurs liability costs as a result.
Risks related to Environmental regulation
Several environmental regulations for water or air pollution prevention, industrial waste, energy, global warming and chemical substances in products are applicable to the Group in both Japan and overseas. The Group takes several measures in product development and manufacturing in order to reduce the impact to the environment and to comply with the related regulations. However, if these measures do not achieve the expected results or regulations and their enforcement are changed or become stricter, the Group's business performance could be adversely affected with limited production activities and increased costs incurred to comply with regulations.
Risks related to COVID-19
The outbreak of the COVID-19 pandemic has caused significant impact on the global economy. The Group anticipates that the potential risk relates to Sales suspension or delay and Manufacturing activities slowdown due to the lockdown of customers and/or supplier’s facilities. As at March, 2020, the impact has been minimal, however, if such outbreaks continue longer than anticipated, then the business results may be further affected.
The Group is engaged in business in various parts of the world and is operating at the optimum level within each country's political and legal system. However, unexpected changes in the political system or regulations in each country could have influence on the Group's business performance.
Furthermore, terrorist attacks, wars, infectious diseases in counties or regions where the Group operates could lead to suspension of the Groups’ sales activities, procurements, manufacturing, shipping, roll-in/installation services and/or indirect operations and may have impact on its business results.