Business Risks

Set out below are risks associated with the 万象城娱乐体育 Group’s operations and other risks that may materially influence the decisions of investors to invest in the 万象城娱乐体育 Group. Forward-looking statements in this section are based on information available as of March 27, 2020.

This section does not include all possible risks relating to the 万象城娱乐体育 Group; there may exist additional risks not stated below. Any such risks are also likely to influence investors’ decisions.

1. Economic conditions in markets in which the 万象城娱乐体育 Group’s products are sold

Demand for the 万象城娱乐体育 Group’s products is impacted by trends in industries such as construction and building materials, automobiles, electronics, displays, and chemicals. The 万象城娱乐体育 Group’s products are supplied throughout the world, for example in Asia, the United States and Europe, as well as in Japan, and sales are therefore influenced by local economic conditions. Although the 万象城娱乐体育 Group is working hard to build an earnings structure that is resilient to changes in the business environment by improving productivity and reducing fixed and variable costs, through falling sales volumes and prices, its performance and financial position are susceptible to declining demand from the industries mentioned as well as economic downturns in the regions where its products are primarily sold.

The situation in each segment is as follows.

1) Glass
In the Glass segment, the 万象城娱乐体育 Group has established development and production bases in Japan/Asia, Europe and the Americas and supplies products throughout the world. Demand for architectural glass is correlated with construction investment, which varies with economic conditions in each region and country. Accordingly, earnings in this business could be impacted by fluctuations in demand for architectural glass. In addition, demand for automotive glass is influenced by automobile sales volume, which is correlated with factors such as economic fluctuations in each region and country. Accordingly, earnings in this business could be impacted by fluctuations in demand for automotive glass.

2) Electronics
Products in the display business are used in LCD TVs, smartphones, and tablets, etc. In the LCD glass substrate business, changes in the market shares of panel manufacturers, which are the Group’s customers, shifts in market trends, and other developments are expected to occur. The 万象城娱乐体育 Group has been working to expand sales based on its customer portfolio. Nonetheless, customer and market trends could have an impact on the profitability of the display business. In the electronic materials business, the 万象城娱乐体育 Group’s main customers are companies involved in industries such as semiconductors and optoelectronics. The performance of these customers depends on market trends in areas such as semiconductors, smartphones, communications infrastructure and industrial equipment. For this reason, earnings in the electronic materials business could be influenced by the impact of these trends.

3) Chemicals
In chlor-alkali products, the 万象城娱乐体育 Group has established production bases primarily in Japan and Southeast Asia, where progress is being made on infrastructure development, and is expanding its business. Demand for these products is mainly correlated with economic growth rates and capacity utilization in core industries in each region and country. Accordingly, earnings in this business could be impacted by fluctuations in demand for chlor-alkali products. In the fluorochemicals & specialty business , the 万象城娱乐体育 Group's main customers are companies involved in transportation equipment, semiconductor and construction industries. Accordingly, earnings in the fluorochemicals & specialty business could be impacted by market trends in these industries. In the life science business, the 万象城娱乐体育 Group is greatly impacted by business conditions and the development status of new products in the pharmaceuticals and agrochemicals industries. Accordingly, earnings in the life science business could be impacted by these trends.

2. Expansion of overseas operations

The 万象城娱乐体育 Group has substantial overseas operations, including exports of products and manufacturing abroad. The risks associated with operating abroad include deteriorating political and economic conditions, the imposition of regulations on imports and foreign investments, unexpected changes in laws, the worsening of public security, economic sanctions between countries, and the occurrence of terrorist attacks and war. These events may hinder the 万象城娱乐体育 Group’s overseas operations and have a serious effect on its performance and financial position.

3. Competitive edge and development and commercialization of new technologies and products

In every field in which the 万象城娱乐体育 Group operates, there are competitors supplying products similar to those of the 万象城娱乐体育 Group. Accordingly, to maintain its competitive edge, the 万象城娱乐体育 Group is striving to identify the needs of customers, and to develop and commercialize new technologies and products. However, should the 万象城娱乐体育 Group fail to appropriately respond to technical changes and customer needs or take too long to develop and commercialize new technologies and products, growth could be hampered and profitability could decline. This may significantly impact the 万象城娱乐体育 Group’s performance and financial position.

4. Manufacturing

The 万象城娱乐体育 Group strives to carry out preventive maintenance on all plant equipment and facilities, and it is working to strengthen priorities such as systems for safety review and maintenance and repair of equipment and facilities. If there are any serious production disruptions, this could have a significant impact on the 万象城娱乐体育 Group’s performance and financial position.

5. Procurement of production materials and resources

If there are fluctuations in the prices of electricity, natural gas, heavy oil or raw materials used in the 万象城娱乐体育 Group's production activities, the 万象城娱乐体育 Group's performance and financial position could be affected. The 万象城娱乐体育 Group hedges the risk of price fluctuations for certain raw materials and fuel through instruments such as commodity contracts. Nevertheless, the 万象城娱乐体育 Group may be unable to completely eliminate the impact of rising raw material and fuel prices. In addition, as the 万象城娱乐体育 Group partially uses special materials of which suppliers are limited if supply tightens or is delayed, or price fluctuations occur, the 万象城娱乐体育 Group’s performance and financial position may be greatly affected.

6. Government regulations

In the countries and regions where it operates, the 万象城娱乐体育 Group is subject to the local government approval and authorization of investments, regulations on exports and imports, and laws governing commercial transactions, labor, patents, taxation, foreign exchange, and other issues. Consequently, amendments to these regulations and laws may significantly influence the 万象城娱乐体育 Group’s performance and financial position.

7. Environmental regulations

The 万象城娱乐体育 Group conducts glass and chemicals operations that use large quantities of resources and energy. Accordingly, we have defined “Environment” as one of Our Shared Values in the 万象城娱乐体育 Group Vision. While complying with various laws and regulations related to the environment, the 万象城娱乐体育 Group conducts activities to reduce its environmental impact, such as cutting greenhouse gas emissions and minimizing the amount of industrial waste sent to landfills.
However, in light of the growing seriousness of environmental issues such as mitigation and adaptation to climate change, sustainable use of resources, prevention of pollution, proper management of chemical substances and water risks, the Group faces the possibility of heightened environmental regulation, including the emergence of new laws and regulations and greater corporate social responsibilities. As a result of these factors, the Group may have to bear higher costs needed to comply with laws and achieve environmental regulatory measures, scale down production, and reduce production efficiency. Consequently, the 万象城娱乐体育 Group’s performance and financial position may be significantly impacted.

8. Product liability

The 万象城娱乐体育 Group is making every effort to ensure that products are of the highest quality, according to their individual characteristics. Despite these efforts, the possibility remains that quality problems may occur because of unanticipated factors, prompting a major recall, for example. This could substantially influence the 万象城娱乐体育 Group’s performance and financial position.

9. Intellectual property rights

The 万象城娱乐体育 Group endeavors to acquire intellectual property rights that are useful for its present business activities and future operations alike, while investigating the rights and business conditions of third parties, in order to prevent intellectual property issues from arising. However, there is the possibility that the 万象城娱乐体育 Group will have disputes with third parties over intellectual property or that third parties will infringe the 万象城娱乐体育 Group’s intellectual property rights. This has the potential to materially influence the 万象城娱乐体育 Group’s performance and financial position.

10. Litigation and legal procedures

There is always a risk that other firms, corporate groups, or individuals may take legal actions against the 万象城娱乐体育 Group with respect to its operations at home and abroad. As of March 27, 2020, there were some lawsuits and legal proceedings pending. If these lawsuits and proceedings result in an unfavorable outcome for the 万象城娱乐体育 Group, its performance and financial position may be significantly impacted.

11. Effect of natural disasters and accidents

The 万象城娱乐体育 Group endeavors to prevent occupational accidents and other accidents involving equipment and facilities, such as production machinery, through the establishment and operation of a systematic management system for occupational safety and health, and for industrial safety and security, along with efforts to promote and ensure machinery safety, and to manage inspections, maintenance and repairs. However, the 万象城娱乐体育 Group faces the risk of unforeseeable events such as a severe occupational accident, serious fire, explosion or leakage incident.
Regarding preparedness for natural disasters, the 万象城娱乐体育 Group has assessed risks concerning earthquakes, high winds, flooding and other natural events at its major bases, and has drawn up business continuity plans for bases that are exposed to significant hazards. Despite these efforts, the Group faces the risk of unforeseeable events such as damage to production facilities and the suspension of product shipments due to severed transportation networks, as a result of natural disasters such as major earthquakes, typhoons, and floods.
If production is suspended temporarily or for an extended period in the Group or the Group's supply chain as a result of the occurrence of such unforeseen events, the supply of products to customers may be disrupted given that alternative production is not possible for certain products, and this could have a significant impact on the 万象城娱乐体育 Group’s performance and financial position.

12. Exchange rate fluctuations

The 万象城娱乐体育 Group manufactures and sells products worldwide, and converts transaction accounts in local currencies, including sales, costs, and assets, into Japanese yen when preparing its consolidated financial statements. Even if the values of these items remain unchanged in local currency terms, they may change when converted into Japanese yen depending on exchange rates.
The 万象城娱乐体育 Group also manufactures products at its facilities worldwide, including Japan, and exports the products to a number of countries. The 万象城娱乐体育 Group generally procures raw materials and sells products in the local currency of each country/region, but there are some product sales and material purchases denominated in foreign currencies. Accordingly, fluctuations in exchange rates influence the prices of materials the 万象城娱乐体育 Group procures and the pricing for its products, and this impacts the 万象城娱乐体育 Group’s performance and financial position.

13. Retirement benefit obligations

The 万象城娱乐体育 Group calculates costs for employee retirement benefits and obligations based on actuarial assumptions of the returns on pension funds and a specific discount rate. If the actuarial assumptions and results diverge substantially because of deterioration in the market environment for pension fund management, future costs for retirement benefits will increase, and this may seriously impact the 万象城娱乐体育 Group’s performance and financial position.

14. Fixed assets, Goodwill and intangible assets

If impairment losses occur in the 万象城娱乐体育 Group’s fixed assets, goodwill and intangible assets because of a drop in profitability, the 万象城娱乐体育 Group’s performance and financial position may be substantially impacted.

15. Information security

Information systems are now playing an extremely important role in the 万象城娱乐体育 Group’s business activities, and the 万象城娱乐体育 Group strives to protect its information assets, such as systems and data. Nevertheless, if important operations are interrupted or confidential data is leaked and so forth due to a disaster, attack by a hacker or computer virus, unauthorized access, or other unforeseen situation, it may have a significant impact on the 万象城娱乐体育 Group’s performance and financial position.