Risk Management

Status of the risk management system

The activities of our group are accompanied by various risk factors both inside and outside the country. We hold a general management meeting once a month at the head office, where all executive officers and above gather. At this meeting, each division reports on various issues such as management issues, sales issues, and overseas business conditions from a company-wide perspective, and we have a system in place to collect information on risks that the Group may face in the future and implement effective countermeasures.
In addition, we established the Compliance Charter and Risk Management Regulations in October 2005.

Business risks

The following is a summary of the Group's business and other risks that may have a significant impact on investor decisions.
Forward-looking statements in the text are based on the Group's judgments as at the end of the current financial year.

1. Changes in economic and market conditions

Demand for our group's products is affected by economic conditions in the countries or regions where our products are sold. The Group's financial position and operating results may be affected by economic conditions in Japan, the U.S., Europe, and Asia, the Group's major markets, and by fluctuations in demand that exceed forecasts.

2. Foreign exchange risk

The Group's performance is primarily affected by fluctuations in foreign exchange rates, such as the Japanese yen, the US dollar, the euro and the British pound. As the Group's consolidated financial statements are presented in Japanese yen, the Group is exposed to exchange rate fluctuations in the form of translation risk and transaction risk. Fluctuations in exchange rates can affect the prices of products sold and materials procured in foreign currencies.

3. Risks related to international activities

The Group's overseas production and sales activities are conducted in the Americas, Europe, Asia, the Middle East, Africa, and other regions. Although the following risk factors are fully considered in these activities, unforeseen risks may occur. In addition, the Group's activities may be restricted by the introduction of stricter laws and regulations or changes in the authorities' interpretation of laws and operational guidelines in the countries in which the Group operates. The manifestation of such risks may affect the financial position and operating results of the Group.

• Political or economic factors
• Changes in laws or regulations
• Potentially adverse tax consequences
• Labour disputes
• Acts of terrorism or warfre

4. Poduct liability

The Group determines the optimal delivery specifications based on agreements with customers, and inspects and accepts products at each factory after rigorous quality control. Although the Group has product liability insurance to cover product liability, the Group's financial position and operating results may be affected by large costs incurred due to product liability risks not covered by insurance or by damage to the brand image.

5. Research and development activities

Although the Group has continuously developed new technologies in anticipation of future customer needs, there is a possibility that customers will ultimately not accept such new technologies due to changes in the social environment or customer needs that exceed expectations. 
In addition, some new technologies require permits and approvals, and there is no guarantee that an application for a permit or approval will be approved.
In such cases, the introduction of new products and services may be delayed, and the Group's advantage over competitors and new entrants may be reduced, which in turn may affect the Group's financial position and operating results.

6. Legal, significant litigation, etc.

The Hosokawa Micron Group has established the "Hosokawa Micron Group Compliance Charter" and its regulations to raise the awareness of all officers and employees of compliance. However, in the event of a violation of laws and regulations, we may be subject to administrative penalties such as suspension of business operations and surcharges.
In addition, although we have made provisions for product warranty and other lawsuits against the Group that we assume on an individual basis to be reasonable, we may incur substantial compensation and other costs as a result of discrepancies between our claims and forecasts. The manifestation of such risks may affect the financial position and operating results of our group.

7. Limitations of intellectual property protection

The Group has advanced technology and know-how that differentiates its products from those of its competitors, and it makes every effort to protect this technology and know-how. Therefore, it may not be possible to prevent third parties from using the Group's intellectual property to manufacture similar products. On the other hand, there is a possibility that the technology and know-how used by the Group may inevitably conflict with the intellectual property rights of other companies, leading to disputes.

8. Credit risk of business partners

The Group prepares for the credit risk of its business partners by conducting credit management with reference to their financial information. However, the Group's financial position and results of operations could be affected in the event of difficulties in collecting receivables due to unforeseen circumstances such as bankruptcy.

9.  Risk of loss of trust due to the spread of untrue rumors

There is a possibility that rumors such as bad publicity, slander, and defamation of the Group may be spread through the Internet and other media. Even if the rumors are not true, they may lower the trust in the Group and its corporate image, which may affect the financial position and business performance of the Group.

10. Natural disasters, infectious diseases, etc.

The Group has manufacturing, sales, service, and R&D bases around the world. In order to minimize the occurrence and spread of damage from natural disasters such as earthquakes, typhoons, heavy rains, and windstorms, the Group is working to make its facilities earthquake-proof, conduct inspections and drills, and establish a communication system.
In addition, in preparation for the global spread of unknown infectious diseases (pandemic) such as the new coronavirus infection, the Group is thoroughly implementing infection prevention measures, placing the highest priority on ensuring the health and safety of its employees. However, a major natural disaster could cause damage to the Group's employees, production facilities, systems, supply chain, etc., which could affect the Group's activities, financial position, and business performance. In addition, if an infectious disease is found to be spreading within the Group, the Group may have to temporarily suspend operations or take other measures, which may affect the Group's activities, financial position, and business performance.

11. Information Security

The Group manages various types of information, including personal information required for business, on its information systems. In managing these information systems and networks, we focus on stable operation and security measures, and take necessary measures such as appropriate server management and information backup. However, in the unlikely event that such information were to leak out, or important data were to be destroyed, tampered with, or the system were to be shut down due to unexpected cyber-attacks, unauthorized access, computer virus intrusion, etc., the Group's credibility could be diminished and its financial position and business performance could be affected.

12. Securing human resources

The Group strives to promote its global business activities and maintain and improve its competitiveness by hiring and training a wide range of excellent human resources engaged in manufacturing, development, sales, technology, administration, and other specialized fields. However, in the event that we are unable to secure a sufficient number of excellent human resources due to intensifying competition in hiring, changes in labor market conditions, etc., or in the event that we are not successful in developing internal human resources or are unable to secure sufficient human resources due to employee retirement, etc., the activities, financial position, and business performance of the Group may be affected. In this case, the Group's activities, financial position and operating results may be affected.

13. Procurement, production, etc.

In order to ensure the stable, timely, and reasonable supply of raw materials and parts, etc., our group is taking measures such as multiple suppliers and procurement from home countries or within regions. However, there may be cases where it is difficult to respond in the short term due to bankruptcy or closure of a supplier, large-scale disasters, or the spread of infectious diseases worldwide, as well as supply shortages and delivery delays of raw materials and parts, etc., which may affect the activities, financial position, and business performance of the Group. In addition, due to sudden changes in the supply and demand environment, etc., an unexpected surge in material or energy prices, or a prolonged tight supply situation, etc., may result in an inevitable rise in procurement prices, which may affect the Group's activities, financial position, and business performance.

14. Response to Environmental Regulations and Climate Change

Responding to global environmental problems and climate change is one of the social issues, and our group plans to start proactively taking measures to comply with environmental regulations and related laws and regulations, as well as mitigate climate change. However, there is a possibility that the costs required to comply with regulations and take measures to realize a low-carbon society will increase. In addition, if the response is difficult, insufficient, or even delayed, it may affect the Group's activities, financial position, and business performance.

Business Continuity Plan in the event of a major disaster

In the event of a major earthquake or other disaster (intensity 6+ on the Japanese scale in the Kinki regiogion in Japan: Our headquarters, its factories locate in Kinki region), the Company's facilities, employees and their families would be damaged and the Company's business activities would be severely affected.
We recognise that dealing with earthquakes and other disasters is an important issue, and in the event of a disaster we will work to ensure the safety of human life, prevent secondary disasters such as fires, and cooperate with our clients to continue their businesses through the early recovery of our operations.
In order to achieve the above objectives, our BCP sets out the following basic policies.

1. Give the highest priority to ensuring the safety of employees, their families and visitors to our facilities
2. Minimise damage to company facilities, including the prevention of secondary disasters such as fires, and restore business operations as soon as possible.
3. We will properly grasp the damage situation of the customer companies to which we have delivered our products, and cooperate with them in their efforts to continue their business.
4. To cooperate with local communities in providing relief to victims of disasters, and to contribute to local communities as much as possible.
5. Conduct drills in line with our business continuity plan and conduct necessary reviews on a regular basis, with the aim of making our company more resilient to disasters and other risks.

Information security