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, 2023). 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 largely related to the number of private-sector non-residential buildings and orders for machinery, ultimately heavily influenced by trends in the domestic economy. As well, technological innovation regarding products in the fields of information/communications and electronic parts is rapid, and the Group's financial status and management results may be affected by the obsolescence of parts in stock or the failure to receive orders.
Although we recognize that there is always a possibility that such risks may materialize in the Group's business environment, we are further enhancing the competitiveness of our core business by preparing to start operation of the Seto Plant, which will be a smart factory employing DX (Digital Transformation), in the spring of 2024. We are also promoting various measures such as expanding our business domain, establishing overseas business bases mainly in Southeast Asia, and establishing new businesses.
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 is dependent on information systems for business activities such as sales and production, as well as handling confidential and personal information related to customers, suppliers, and employees. Group financial status, management results, etc., would be affected in the case of unforeseen long-term information systems failures or leaks of personal information.
While conscious that the relevant risks cannot easily be entirely eliminated, given the more advanced cyberattacks now common, we are working to reduce the risks through information system countermeasures against external attacks, computer virus countermeasures, employee education on security compliance, etc., as well as continuing to make active use of new information systems.
Labor Environment
The business activities of NITTO KOGYO Group are conducted thanks to the work of many officers and employees. Group financial status, management results, etc., would be affected in the case of permanent labor shortages, workplace accidents due to worsening labor environments, etc., labor affairs compliance failures, etc., along with the decreased officer/employee morale resultant therefrom.
As the diversification of values concerning labor continues, while conscious that the relevant risks are constantly an issue, the Group has embarked on "work satisfaction reforms," taking steps to reduce the risks by realizing a healthy, satisfying workplace environment through safety measures, work hours management, the establishment of an advice desk, and motivation improvement measures.
Procurement of Raw Materials
NITTO KOGYO Group manufactures products with raw materials such as steel, stainless steel, resin, and copper, along with purchased devices. It also procures and sells telecommunication devices. Group financial status, management results, etc., would be affected in the case of high procurement prices or stalled supply due to international political/economic affairs or product market trends.
With regard to these risks, the Group supply chain has been affected in part by the worldwide semiconductor shortage, lockdowns in Shanghai, Russia's incursion into Ukraine, and so on. While conscious that the relevant risks cannot easily be entirely eliminated, given our extensive use of raw materials whose supply is affected by market issues, etc., the Group is working to mitigate the risks by increasing its purchasing power through joint purchasing, etc., as well as taking measures such as dispersed suppliers including overseas procurement, dynamic inventory confirmation, and materials specification changes.
Also, with regard to transportation logistics, delivery times and transportation costs are expected to increase, and we are working to reduce these risks by establishing new distribution centers and improving the 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 influence of the digital revolution on management speed, customer relations, competitiveness, etc., is only expected to further increase. Group financial status, management results, etc., would be affected if our current competitive edge became difficult to sustain.
Along with continuing to promote the use of digital technology and to maintain business competitive edge by enhancing superior sales systems and cost competitiveness, we are working to reinforce the Group management foundation through the construction of an ICT infrastructure platform.
Business Portfolio
NITTO KOGYO Group is composed of manufacturing, selling, installation and maintenance business of electrical distribution boards, switch boards and components in electrical and telecommunication infrastructure sector as its core business, as well as the electrical and information infrastructure-related distribution business, which handles network products, and the electronic components manufacturing business, which manufactures and sells electromagnetic wave environmental components and other products. Group financial status, management results, etc., would be affected if its core businesses were to struggle, as Group results are heavily intertwined with core business results, mainly those of NITTO KOGYO CORPORATION.
In addition to continued reinforcement of the core businesses, growth of each business segment, and promotion of globalization, we are working toward Group growth through the expansion of business areas related to EV infrastructure, energy management, disaster prevention and mitigation, workstyle reform, etc. and by taking on new business challenges.
Overseas Business Expansion
As NITTO KOGYO Group does business overseas as well, constituting one of the major keys to its growth, Group financial status, management results, etc., would be affected in the case of struggling businesses, international political and economic trends, warfare, terrorism, large-scale natural disasters, pandemics, etc.
While continuing to construct a firm business basis in our growing overseas markets and focusing on business development in Southeast Asia, we are working to grow as a Group through an enhanced Group governance system.
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
As awareness of global environmental issues rises, Group financial status, management results, etc. may be affected not only by product handling due to rationalized energy use in business and stricter regulations on environmentally loaded substances, but also through assessment of its initiatives toward environmental issues, in particular climate change risks.
Under the Sustainability Committee, NITTO KOGYO Group, in collaboration with other specialist committees, will monitor risks and opportunities regarding climate change as well as planning and executing strategies for environmental issues. In addition, the Group has established targets for CO2 emission reduction and is working to reduce supply chain emission amounts toward realizing a sustainable society and improving corporate value.
We are continuously working to mitigate these risks by reinforcing initiatives on environmental issues throughout Group business activities, including the supply chain and shipping, such as continued suppression of waste in the manufacturing process, rationalization of energy use, globally eco-friendly product development, and switching to green energy.
Large-scale Disasters, etc.
The headquarters and main plants of NITTO KOGYO CORPORATION, the flagship Group company, are located in areas likely to be affected by the projected Nankai Trough Earthquake. In the case of a major natural disaster of this kind, production capacity and logistics functions would be seriously affected by damage to plant buildings and production facilities, delays in supply chain recovery, electricity supply shortages, etc., affecting Group financial status, management results, etc.
We are conscious of the possibility that the Nankai Trough Earthquake may occur in the near future. In order to prioritize human life while minimizing the effect on production and sales of a major disaster, NITTO KOGYO is working actively to organize a business continuity plan such as disaster drills, safety confirmation drills, antiseismic measures, redundant data management, etc.
Pandemics
Group financial status, management results, etc., would be affected in the case of even longer-term stagnation of economic activities intended to prevent the spread of a large-scale infectious disease or a mutation of COVID-19, with supply chain disruption, seriously affected private-sector facilities investment, decreased demand due to stoppage or delays in electrical and communication infrastructure construction, etc.
NITTO KOGYO Group has taken measures to prevent the spread of COVID-19 such as remote work in certain contexts, anti-droplet countermeasures in the office, thorough temperature checks for employees, etc. As well, we have worked to ensure inventory of and find domestic procurement for some parts procured overseas. In the event of a new large-scale infectious disease outbreak, we will continue our business operations after implementing measures to prevent the spread of infectious diseases and ensure safety by leveraging the experience and infrastructure we cultivated during the COVID-19 pandemic.