Risk Management
The main risks likely to influence the NITTO KOGYO Group financial status, management results, etc., include the following. Items in the text concerning the future are based on Group judgments as of the end of the consolidated fiscal year (March 31, 2024). With awareness of these risks, the Group intends to make every effort to avoid them and, should they occur, to handle them.
Business Environment
Demand for NITTO KOGYO Group products is related largely to the number of private-sector non-residential buildings and machinery orders in Japan, and is ultimately affected greatly by domestic economic trends. In addition, technological innovation is advancing rapidly regarding products in the fields of information and communications and electronic components, and the Group's financial position and business results may be affected by the obsolescence of inventories held and the failure to receive project orders.
The Group recognizes that it is always possible such risks may materialize in its business environment, but we will further enhance the competitiveness of our core business through initiatives such as putting Seto Plant into operation in the spring of 2024, which will realize a smart factory using DX (digital transformation), and push forward various measures such as expanding our business domains, establishing overseas business bases centered on Southeast Asia, and establishing new business.
Quality
The products provided by NITTO KOGYO Group are manufactured and shipped within a stringent quality control system. While we have constructed a control system able to respond rapidly in the case of defects, etc., should problems related to the Consumer Product Safety Act or Product Liability Act arise, we would run the risk of damage to our social evaluation and corporate image, thus potentially influencing the Group financial status and management results.
NITTO KOGYO Group provides products in a wide range of models, many based on individual specifications, and is thus conscious that the relevant risks cannot easily be entirely eliminated. However, we are steadily furthering our quality assurance system, including design quality improvement, production process improvement, inspection system expansion, and thorough quality education.
Information Systems and Information Security
NITTO KOGYO Group relies on information systems in sales, production and other business activities, and also handles confidential information and personal information related to customers, suppliers, employees and other parties. If something like a prolonged shutdown of an information system or a leakage of confidential information or personal information occurred due to an unforeseen event, it could affect the financial position and business results of the Group.
We recognize that it is difficult to eliminate such risks completely due to increasingly sophisticated cyber attacks, etc., but we are working to reduce risks through the implementation of countermeasures against external attacks on information systems, countermeasures against computer viruses, employee education on security compliance, etc., and continuing to use new information systems positively.
Labor Environment
The business activities of NITTO KOGYO Group have been made possible through the involvement of many officers and employees. If industrial accidents, labor compliance problems, etc., occur due to factors such as persistent shortages in personnel or deterioration of the work environment, problems such as declining morale among executives and employees associated with them could affect the financial position and business results of the Group.
We recognize that such risks will always exist while values regarding labor continue to diversify, but we are striving for the reduction of such risks by realizing healthy and rewarding workplace environments based on the implementation of safety measures, work hour management, a consulting service, and motivation improvement measures under the Group's "Job Satisfaction Reform" policy.
Procurement of Raw Materials
NITTO KOGYO Group manufactures products using raw materials such as steel, stainless steel, plastic and wrought copper materials, and purchased equipment, and purchases and sells information and communications equipment, etc. If procurement prices soar or supply tightens in supply chains due to international political and economic conditions or trends in commodity markets, or if problems related to the environment or human rights occur, the Group's financial position and business results could be affected.
Although risks related to tightness of supply continue to ease, difficulties in the procurement of parts and soaring raw material prices continue to affect some areas of the Group's supply chains. We recognize that eliminating such risks completely is difficult because we use many raw materials, etc., whose supply is influenced by market conditions, etc., but we are striving for the reduction of this risk by advancing measures such as the diversification of suppliers, including overseas procurement, securing flexible inventories, and changing the specifications of the parts used, as well as by enhancing the Group's purchasing power through joint purchasing and other means.
In addition, we are also striving for the strengthening of sustainable supply chains through the promotion of environmentally-friendly procurement and the establishment of the "NITTO KOGYO Group Human Rights Policy." With regard to transportation and logistics too, delivery times and transportation costs are expected to increase, so we are striving for the reduction of such risks by advancing the establishment of Koriyama Distribution Center and the greater efficiency of deliveries.
Ensuring and Cultivating Human Resources
The sustained growth of NITTO KOGYO Group is predicated on actively ensuring and cultivating gifted human resources. Although we are taking measures such as active hiring, use of external expertise, and internal education system improvement, Group financial status, management results, etc., would be affected in the case of difficulty ensuring the human resources necessary for business operation.
Through continued diversification of the hiring process, a flexible human resources system, employment of diverse human resources, and a thorough education system, we are working to ensure the presence of the human resources necessary for sustained growth.
Evolving Digital Technology
The trends of the digital revolution are expected to exert further impacts on management speed, customer relationships, competitiveness, etc. If maintaining our current competitive advantage becomes difficult due to these factors, NITTO KOGYO Group financial position and business results could be affected.
We will continue to promote the use of digital technology, strive for the maintenance of the competitive advantage of our business by improving our superior sales system and cost competitiveness, etc., and advance the strengthening of the Group's management base through the construction of an ICT infrastructure platform.
Business Portfolio
NITTO KOGYO Group is comprised mainly of: electrical and information infrastructure-related manufacturing, installation and services, including the manufacture and sales of power distribution/switch boards and components, as a core business; electrical and information infrastructure-related distribution business, which handles network products; and electronic components manufacturing business, which manufactures and sells electromagnetic wave environment components. The Group's results are linked strongly to the performance of NITTO KOGYO CORPORATION, which is responsible mainly for this core business, so a downturn in core business could affect the Group's financial position and business results.
In addition to the further strengthening of core business, the growth of business in each segment through appropriate resource allocation, and the promotion of globalization, we will continue to strive for growth as a group through the expansion of business areas related to the environment, such as EV infrastructure and energy management, and taking on the challenge of new business.
Overseas Business Expansion
NITTO KOGYO Group also develops business overseas, and this is an important key to its growth, but the Group's financial position and business results could be affected by a downturn in business, international political and economic trends, war, terrorism, or large-scale natural disasters, etc.
We will continue to build a strong business structure in overseas markets continuing to grow, focus on business development centered on the Southeast Asian region, and strive for growth as a group by strengthening group governance systems.
Intellectual Property
NITTO KOGYO Group possesses large amounts of intellectual property and simultaneously maintains and manages them suitably for protection of rights. We also conduct suitable investigations and discussions in order to avoid infringing on the intellectual property rights of third parties. However, Group results would be affected in the case of intellectual property issues such as invalidity, imitation, or infringement taking place with a third party.
Based on the awareness that management of intellectual property in overseas market development, in particular avoidance of infringement on third-party intellectual property, is essential for business activities, we are working to mitigate this risk through enhancing research into patent publications, overseas standards, etc.
Environmental Issues
Growing awareness of global environmental problems is not limited to the rationalization of energy use in business activities and product handling due to stricter regulations on environmentally hazardous substances. The evaluation of the Group's attitude towards environmental problems, particularly initiatives aimed at climate change risks, etc., could affect NITTO KOGYO Group financial position and business results.
Under the "Sustainability Committee," the Group monitors the risks and opportunities related to climate change in cooperation with other specialized committees, etc., and formulates strategies and promotes initiatives to address these issues. In addition, we also set GHG emissions reduction targets as a group and promote initiatives for the reduction of supply chain emissions towards the realization of a sustainable society and the improvement of corporate value.
We will continue to strive for the reduction of such risks by strengthening the suppression of waste in manufacturing processes, the rationalization of energy use, the development of environmentally-friendly products, the switchover to green energy, and initiatives that address environmental issues throughout the Group's business activities, including supply chains and deliveries.
Large-scale Disasters, etc.
Many of the Group's major business bases are located in areas that are highly likely to be affected by a Nankai Trough earthquake, something that is expected to occur in the future. If such a large-scale natural disaster, etc., does occur, problems such as damage to plant buildings and production facilities, delays in the restoration of supply chains, and power supply shortages could exert great impacts on production capacity, logistics functions, etc., and affect the Group's financial position and business results.
We recognize that the probability of damage due to a Nankai Trough earthquake in the near future is high. The Group places the highest priority on human life and is actively developing business continuity plans including disaster prevention drills, safety confirmation drills, various earthquake-proofing measures, and the duplication of data management to minimize the impacts on production and sales at the time of a large-scale disaster.