Business and Other Risks

At the Group, the Sustainability Committee, which consists of Directors and Executive Officers, etc., is also in charge of environmental management and occupational health and safety management. It anticipates and analyzes the factors that cause risks in various fields, and implements measures to avoid the emergence of risks and minimize losses when risks emerge. In addition to the above, the Sustainability Committee anticipates and responds to long-term risks from the perspective of Environmental, Social and Governance (ESG).

With regard to compliance risks, including breach of our corporate philosophy and laws and regulations, in addition to advancing initiatives to minimize risk through training, etc., the Compliance Committee confirms that the whistleblowing system is well-known and that compliance is observed.

The following is a list of major risks that we recognize as having the potential to materially affect the financial position, operating results, and cash flows of the Group, among the matters related to business conditions, accounting conditions, etc., as described in the Annual Securities Report.

Forward-looking statements in the text are based on the judgment of the Group as of the date of submission of the Annual Securities Report, and do not necessarily cover all risks that may arise in the future.

(1) Risks Related to COVID-19

The world has finally started to normalize social activities following the spread of the COVID-19 pandemic. Even so, there is always the risk that new infectious diseases could spread, so the Group continues to take thorough measures to prevent and control the spread of infectious diseases, paying close attention to the status of infectious diseases around the world, and revising the Group’s activities and organization as necessary.

(2) Geopolitical Risks

Geopolitical tensions continue, and particularly following Russia’s invasion of Ukraine, all countries have revised their energy policies, and it has become difficult to make long-term forecasts about changes in industry. The Group anticipates risk to be able to quickly respond to change in the short-term and long-term business environment, striving to stabilize production such as by ensuring multiple suppliers and by developing products that assume multiple solutions for decarbonization.

(3) Risk of cost increases

Raw material costs, logistical costs, fuel costs and other factors have increased due to soaring resource prices and other factors caused by the post-COVID economic recovery and heightened geopolitical risks. The Group is striving to appropriately pass on such cost increases to selling prices.

(4) Risks Related to the Global Environment

The worldwide progress of discussion on the global environment may change environmental regulations such as vehicle emissions standards and industrial pollutant emissions standards, which may affect the Group’s development and production activities. At the same time, we recognize that solving the problems of climate change is a global issue and is the one that must be taken seriously by the Group, which upholds a corporate philosophy of “With a global perspective, Mikuni will contribute to the realization of an affluent society by making full use of our human resources and technology.” The Group has declared an aim of achieving “carbon neutrality by 2050.” The Board of Directors has decided as a mid-term target to reduce each of Scope 1 and Scope 2 emissions, along with Scope 3 emissions (the portion that can be controlled by the Mikuni Group), by 2030, by 50% compared to 2016. To reduce greenhouse gas emissions in Scope 3, we strengthen our sales and development systems with the aim of increasing the use of our products in highly efficient and clean end products to reduce greenhouse gas emissions from products sold.

(5) Risks Related to Competition, Demand Fluctuations

In addition to the Group’s business being affected by economic trends in Japan and overseas, it is also affected in the supply chain by the status of production of other parts manufacturers and manufacturing customers. In our mainstay Automobile-related Products Business, the electrification of automobiles and the empirical research of automated driving systems are expected to progress in the long term, and companies from other industries are increasingly entering the automotive industry. This may cause changes in our business environment in the long term. Furthermore, the supply chain has also experienced constraints on production due to parts shortages at the same time as demand has been affected by the spread of COVID-19. To address these risks, the Group will carefully assess long-term technological trends and respond to market changes by shortening product development time. With regard to the organization, the efficiency of the Automobile-related Products Business will be improved through functional integration of sales and development (R&D) as well as that of production and procurement.

(6) Risks Associated with Fluctuations in Financial Markets such as Exchange Rates and Interest Rates

As the Group operates businesses in North America, Europe, Asia and Japan, fluctuations of exchange rate may affect our financial position, etc. In addition, the net financial income, etc. for Japan and each local subsidiary is affected according to the counter-inflation measures and monetary policy trends in each country. Financial market fluctuations may also affect the Group’s financial position, etc. The Group deploys hedges and other techniques such as currency matching between purchases and sales and currency forwards to mitigate the foreign exchange risks arising from business transactions.

(7) Risks Related to Product Quality

The Group designs, produces and sells products giving the highest priority to quality, but there is a risk that defects arise in products due to unexpected causes. In addition, a decline of trust in quality could cause reduced demand for the Group’s products, so we recognize that risks concerning quality have a very large impact on the Group. To address risks related to quality, the Group increases awareness concerning product quality across the entire Company every day, while implementing consistently predictable schemes from purchasing to production, logistics and sales, striving to ensure product quality.

(8) Risks Related to Large-Scale Disasters

Many of the Group’s domestic bases are located in areas subject to Tokai Earthquake and Tokyo Inland Earthquake. In addition to utilizing networks aimed at “connected factories,” we also anticipate the impact from cyberattacks to be a risk. In addition to preparing regulations and systems for emergency management needed to continue the business and to minimize the damage from a major earthquake and cyberterrorism, the Group is examining and implementing specific measures, focused on the Sustainability Committee. In response to natural disasters such as earthquakes, we are working on strengthening the earthquake resistance of buildings, such is installing seismic isolation devices on some datacenter buildings and production buildings. In addition, apart from introducing safety confirmation systems for employees and customers, we have prepared a manual in advance for disaster prevention and recovery, conducting emergency training and taking preliminary measures.

(9) Risks Associated with Global Business Operations

The following various risks are conceivable for the countries and regions in which the Group’s bases are located. We take the appropriate response for the respective risks, but the materialization of such risks could have an impact on the Group’s operating results and financial position.

• Spread of new infectious diseases
• Outbreak of conflict
• Rapid changes in laws, regulations, taxation, etc.
• Disputes due to differences in work environment
• Risk of terrorist attacks, including cyber-terrorism, wars, financial collapses, etc.
• Infringement of our intellectual property rights, such as counterfeit products
• Unforeseen litigation risk