We consider the following items to be risks that may affect our group's business performance and financial position. In addition, even if risks other than those listed below occur, they may have a significant impact on the Group's operating results and financial position. The Group is aware of these risks, has established a risk management system, and strives to avoid risks and minimize the impact of risks when they occur.
Please note that matters regarding the future in the text are based on judgments made by the Group as of the filing date of the Annual Securities Report (June 28, 2023), and do not cover all risks related to the Group's business.
The main business of the Group is to supply electronic components to manufacturers of electrical components for automobiles, manufacturers of AV audio equipment, and manufacturers of various electronic products.
The automotive market accounts for the majority of consolidated sales, and demand trends for both automobile-related products and electronics-related products are greatly affected by global economic conditions. Therefore, if the demand for the Group's products drops significantly due to an unexpected deterioration of the global economy or abrupt changes in the markets for automobile-related products and electronics-related products, the Group's business performance and financial position may be affected. However, we are strengthening sales in non-automotive markets such as FA equipment and communication equipment to make it a second pillar of sales.
The Group manufactures and sells electronic components worldwide, and transactions between the Company and its overseas subsidiaries and affiliates are denominated in US dollars, euros and Thai baht. In the FY2022, the ratio of overseas sales to consolidated sales will be 81.0%, while the ratio of overseas production will be approximately 87.2%.
Although a sharp and prolonged appreciation or depreciation of the yen could affect the Group's performance and financial position, the Group takes measures for promoting local production for local consumption, hedging risks to mitigate the impact of exchange rate fluctuations, and other purposes.
Our group is actively promoting global business development, and many of our production and sales activities are conducted in the United States, Europe, China other Asian countries. Business expansion into these overseas markets involves 1) unexpected changes in laws, environmental regulations, or tax systems, 2) occurrence of unfavorable political or economic factors, and 3) delays in social infrastructure such as transport delays and power outages. 4) Risks such as political change, acts of terrorism, war, epidemics of infectious diseases and other social turmoil are always inherent. In the event of any of these events, the Group's performance and financial position may be affected. However, when expanding overseas, we will carefully consider and evaluate the risks at both our sales bases and production bases before making decisions.
The Group concentrates production at its Shanghai production subsidiary in China, excluding products produced at multiple bases at the Ibaraki Plant, the Philippines production subsidiary, and the Vietnam production subsidiary. In the event of unforeseen circumstances that make it impossible to operate these production bases for some reason, it may affect the performance and financial position of the Group. We are working to rebuild our mass production bases. In addition, we will build a new factory in Akita, which will be our second mass production base in Japan, aiming to start operations in 2025, and strongly promote distributed manufacturing, local production for local consumption and BCP management.
The electronic components industry, to which the Group belongs, is an extremely competitive industry, where there are both Japanese and international peers in different sizes, ranging from large to small and medium-sized, and price competition has been intensifying. If we become involved in competition to lower sales prices, it may affect the performance and financial position of the Group. We are actively working on accumulating unique technologies such as “Floating Board to Board Connector*” and developing new products and new technologies by focusing on advanced development, and are committed to creating customer values by suggesting our products that help our customers reduce TCO (Total Cost of Ownership) .
※ A connector designed to Floating in all or any of the pitch direction of terminals, the direction perpendicular to the pitch direction, and the mating direction, and to mating misalignment.
Our group ensures that all products are manufactured in accordance with the international standard on quality management and adopts a production system for minimizing product defects, recalls, and similar incidents. We also have insurance coverage for product liability claims. However, the potential event of product defects, which may lead to large-scale recalls or product liability claims, could cause substantial costs and the serious decline of our group’s brand loyalty, as well as affecting our financial performance and position. Through leveraging our experience and know-how for earning high trust from global automotive customers, our group gives close attention to detail at every stage from product development to shipment.
The markets in which the Group operates have strict requirements for technological innovation and cost competition, and it is necessary to continuously introduce new products. If the development of new products does not proceed as expected due to rapid technological progress or changes in customer needs, future growth and profitability may decline, and the Group's business performance and financial position may be affected. The Group conducts sufficient marketing activities, accurately grasps market needs, and invests in research and development and equipment necessary for new technology and new product development and production process reform. We believe that we can continue to develop new products.
The Group relies on external suppliers for the supply of all major raw materials and some parts. We have built a cooperative relationship with these external suppliers to ensure stable supply, but in the event of supply shortages due to sudden fluctuations in demand or supply delays from supply destinations, we may not be able to supply customers. We may lose competitiveness by causing delays in delivery. In addition, if market prices rise sharply due to changes in the supply and demand relationship in the market for raw materials, etc., the cost of the Group's products may increase, which may affect the Group's business performance and financial position. In addition, in response to changes in market conditions for parts, we are working to reduce costs by promoting in-house production within the Group and promoting local procurement through global procurement.
In the event of a large-scale disaster that exceeds our expectations, there is no guarantee that we will be able to completely prevent or mitigate the impact of blackouts or other events that disrupt business operations, and the Group's performance and financial position may be affected. In response to this, we are thoroughly implementing disaster prevention measures, including earthquakes, and in order to prevent damage from accidents and disasters caused by fire, wind and flood damage, etc., we are conducting facility inspections, enhancing safety devices and fire extinguishing equipment, and conducting various safety activities. We are doing it continuously.
The Group is subject to litigation, disputes, and other legal proceedings in relation to domestic and overseas business. Intellectual property rights are one of the most important management resources, especially in the electronic components industry, where technological innovation is intense. Infringement or imitation by a third party of intellectual property rights held by the Group based on patent applications and design registrations related to independently developed technologies may have a significant impact on the Group's business activities. In addition, if the Group receives a claim for damages for infringement of a third party's intellectual property rights, its production and sales activities may be restricted or it may be required to pay compensation for damages, which may affect the Group's performance and financial position.
The management and operation of intellectual property rights, including patent rights, is centrally managed by the Technology Management Section of the Technology Division. In addition, we have a system in place to share information between developers and designers and the intellectual property rights staff of the Technical Management Section, and to respond as appropriate to issues raised and resolved concerning intellectual property rights.
The Group belongs to the electronic components industry, where technological change and competition are intense, and the ratio of overseas sales and production is high. It is important to continuously promote the recruitment and development of human resources with excellent management skills such as organizational operation. Since the number of highly specialized and talented human resources is limited, if we are unable to secure talented human resources, it may affect our business performance and financial position. , we are actively recruiting in Japan and overseas.
Through our business activities, our group may obtain personal information and confidential information of customers and business partners, and we also possess confidential business and technical information.
In the unlikely event that this information is leaked, or that important data is destroyed, falsified, or the system is stopped due to unexpected cyberattacks, unauthorized access, computer virus intrusion, etc., the Group's credibility, business performance, etc. It may affect your financial situation.
In response to this, the Group has established "Information Security Regulations" and an Information Security Committee in order to ensure the proper management of confidential information, and is working to establish and thoroughly implement a confidential information management system. . In addition, we regularly conduct education such as e-learning for the purpose of improving the information security awareness of officers and employees.
In addition, regarding the GDPR (EU General Data Protection Regulation), which came into effect in May 2018, we are strengthening measures to protect applicable personal information globally.
In March 2020, in response to the global pandemic of the new coronavirus, we launched a countermeasures team at the head office consisting mainly of the president and executive officers. We are taking measures to prevent the spread of infection by taking body temperature measurements, checking physical conditions, wearing masks when coming to work, and promoting remote meetings, staggered commuting hours, and working from home. In the face of major outbreaks of infectious diseases, the situation of infection and the policies of each country may affect the Group's business performance and financial position in the future as well. Regarding production activities, in order to minimize the impact even if operations are suspended due to lockdown measures, we have been reviewing our BCP response since February 2021, increasing inventory and arranging spare equipment for liquid products. We will implement three initiatives: shortening the lead time of equipment and multi-production by changing the production system of liquid products.
In addition, we will strive to optimize cash management within the group in order to secure cash on hand in preparation for stabilizing management and employment and medium- to long-term growth investment in the event of unforeseen circumstances. Specifically, we will implement optimal allocation of funds among group companies and curtail expenditures by postponing capital investment.