General View of Corporate Governance
In light of the situation of stakeholders including shareholders, our company holds the belief that the most important management issue is to sustainably increase corporate value, based on ensuring management transparency, equity and healthiness.
By the execution of various measures which contribute to reinforcement of corporate governance, we will establish strong relationship of trust with shareholders and other stakeholders.
Risks that may affect the Group’s financial position and operating results as the Group continues to grow and evolve include the following.
The forward-looking statements in this document are based on judgments made as of the filing date of the Annual Securities Report for the fiscal year ended March 31, 2022, and business and other risks are not limited thereto.
(1) Risk of competition
The electronics industry to which the Group belongs is undergoing major environmental changes, such as “market maturation and entry of start-ups,” “progress of the IoT (Internet of Things) and AI (artificial intelligence)” and “diversification and sophistication of needs,” and is an industry with fierce competition. As a result, factors such as intensified price competition and delayed response of the Company’s products and services to technological innovation may affect the Group’s performance.
The Group aims to increase added value by improving operational efficiency and enhancing its technological capabilities to provide one-stop services and new business models.
(2) Risks associated with overseas expansion
The Group operates in overseas countries and regions. Therefore, changes in political and economic conditions, changes in laws and taxation systems, social disruptions caused by terrorism, wars or pandemics, etc., debt collection risks, labor shortages and rising labor costs, etc. in overseas countries and regions may affect the Group’s business performance.
The Group ascertains risks in each country in advance, communicates with local experts and business partners overseas, and takes every possible measure to manage risks.
(3) Risk of foreign exchange rate fluctuations
Since the Group is engaged in global business activities not only in Japan but also in overseas countries and regions, it is affected by foreign exchange rate fluctuations, and significant exchange rate fluctuations may affect the Group’s performance.
Although it is difficult to completely eliminate the foreign exchange risk, the Group will try to hedge risks by, for example, matching the currencies of sales and purchases and making forward exchange contracts.
(4) Risks related to the launch of new businesses and investments
In launching new businesses and making other investments, we make decisions after thoroughly examining their marketability and profitability, etc. However, if a discrepancy occurs in the initial plan due to a sudden change in the market environment or other unforeseen circumstances, we will recognize an impairment loss or take other measures, and this may have an impact on the Group’s performance and financial condition.
The Group will, even after investment, review the progress of each business and investment and consider whether it should be continued or not at the Investment/Finance Committee and other committees, while enhancing its prior scrutiny, such as examination of the appropriateness of objectives and quantitative verification through discussions at meetings of the Board of Directors, the Investment/Finance Committee. We will also work to address the legal risks inherent in our business that may arise from the launch of our business or from contracts.
(5) Risks in securing and developing human resources
The Group recognizes the importance of recruiting and developing human resources with superior skills and know-how. Failure to secure or develop the necessary human resources may have an impact on the Group’s business development and performance.
The Group will conduct an inventory of its human resources and promote recruitment activities after clarifying skills. The Group will also develop an evaluation and compensation system and an education system.
(6) Risks such as climate change, natural disasters, accidents and disasters, and infectious diseases
The Group is engaged in a wide range of businesses. In the event of climate change, natural disasters such as earthquakes, floods and typhoons, accidents and disasters such as fires, or infectious diseases, in addition to the risk of direct damage to its own employees and related facilities, the Group’s business activities may stagnate due to the suspension of operations by suppliers and other client manufacturers, and this may have an impact on the Group’s performance.
In response to the risks posed by climate change, we have been working on industrialization through the expansion of power generation using renewable energy, etc. In terms of the importance of risk management in climate change, we will promote efforts to reduce CO2 emissions in Scope 1 and 2 based on the framework of the TCFD (Task Force on Climate-related Financial Disclosures).
In addition, with regard to risks such as natural disasters, accidents and disasters, and infectious diseases including COVID-19, we will thoroughly implement operational manuals designed to prevent such risks. At the same time, we will promote a rapid business continuity plan (BCP) centered on disaster prevention measures, telecommuting systems, and continuation of supply chains, and seek to hedge risks by, for example, purchasing non-life insurance.
(7) Risk of information leakage
The Group retains confidential and personal information obtained from a wide variety of business partners, and any leakage of such information assets may not only result in a loss of business partner information assets, but also result in a loss of the Group’s social credibility and have an impact on the Group’s business performance.
In order to prevent information leakage, the Group has established an information security system based on the Group Information Security Regulations, and is implementing educational and enlightenment activities for its officers and employees (establishment and operation of security handbooks, etc.).
(8) Risks associated with the Group’s businesses
– Risks related to client demand trends
The semiconductors and electronic components sold by the Group are installed in clients’ (set manufacturers’) products, and the equipment is incorporated and used as part of their business processes. Therefore, changes in clients’ capital investment trends due to changes in demand trends and the functions installed in client products, as well as changes in the economic environment and business climate, may affect the Group’s performance.
– Risks related to clients and suppliers
The Group does business with a wide range of business entities in Japan and overseas. In the semiconductor and electronic components business and the electronic equipment business, the Group is highly dependent on particular business entities because it handles a large number of parts for such entities. Changes in the management policies of such entities, tightness in supply and demand for specific parts and other similar factors may affect the Group’s performance. In addition, if there is a change in the Group’s commercial rights as a result of a supplier’s business restructuring (M&A, etc.) or revision of sales channel/territory policies, etc., the Group’s performance and financial condition may be affected.
– Risks related to seasonal factors of business
Because of the nature of the Group’s electronic equipment business, which mainly targets the broadcast-related market and markets consisting of business entities, schools or government agencies, sales tend to be concentrated in March and September due to the execution of clients’ budgets.
Therefore, changes in clients’ budget execution plans, etc. may affect the performance forecast.
– Risks related to changes in policies, etc.
The environmental energy business developed by the Group has aspects that are highly related to various laws and regulations, such as national policies and environmental regulations. Therefore, changes in national policies and environmental regulations, etc. may affect the Group’s performance.
– Risks associated with fluctuations in electricity market prices
In case of large fluctuations in the market price of electricity caused by factors such as a rise in crude oil prices, large fluctuations in foreign exchange rates, or the shutdown of nuclear power plants due to natural disasters, etc., the profitability of the new power business may be affected, which in turn may affect the Group’s performance.
– Risks related to vegetable factory operations
In the event of equipment failure, vegetable disease, or infectious diseases in a vegetable factory, the factory must temporarily suspend operations to resolve the problem, which may affect the production plan. In addition, if the Group receives a claim for expenses or any other claim from a third party due to the occurrence of a defect, etc. in the merchandise it provides, and the liability is determined to be attributable to the Group, it may affect the Group’s performance.
With regard to individual business risks, we will strive to diversify risks by promptly gathering information, expanding our lineup of products so as not to rely on specific businesses, developing new suppliers and clients and taking other measures, and in addition, by pursuing diverse business development as a group strategy.
(9) Risks related to long-term management
There is a risk that we are relying on the judgment of Mr. Kunihiro Konno, Representative Director Chairman and President CEO, to achieve the Group Vision. Mr. Konno’s sudden departure could have a negative impact on the Company’s operating results and financial position. With the aim of achieving sustainable growth and evolution, the Company is working to build a system that can realize long-term management with a view to the future through the execution of innovative group management by multiple Representative Directors who share the group’s philosophy and vision. This system also includes the purpose of fostering successors.
In accordance with the Risk Management Regulations, the Group has each division of each company identify, evaluate and respond to risks, and holds various committees and meetings to monitor risks. In addition, the Group has established a system to report to the Board of Directors, etc. of the parent company according to the degree of importance.