Business risks that may potentially have significant influence on the Daicel Group’s business performance and financial position include the following.
Items listed below do not necessarily comprise all of the risks related to the business of the Daicel Group.
All forward-looking statements are based on information available as of June 24, 2019.
The Company’s ratio of overseas sales to consolidated net sales is on the increase (51.9% in the fiscal year ended March 31, 2019), and the Company’s results are becoming more easily influenced by exchange rate fluctuations. We generally believe that depreciation of the yen has a positive effect on our performance, while appreciation of the yen has a negative effect on our performance. Though the Company executes exchange contracts and otherwise hedges foreign currency risk, these activities do not guarantee the complete elimination of this risk.
The Company is broadening its overseas business development, centered on China and the rest of Asia, as well as in North America, Europe and elsewhere. However, there are inherent risks in overseas operations. These include unforeseen legal and regulatory changes, vulnerability of industrial infrastructure, difficulties hiring and retaining qualified employees, and social or political instability caused by acts of terrorism and war. In the event that any of these risks arise and cause disruption to overseas business operations, the Daicel Group’s consolidated performance and business plans could be affected.
The Daicel Group engages in stable procurement of raw materials and strives to secure adequate supplies necessary for its production activities by conducting purchasing from multiple suppliers. Despite this preference for multiple suppliers, however, the Group may become reliant on a limited number of suppliers for certain special raw materials. Alternatively, supplies may be suspended due to events affecting a supplier, such as natural disaster, accident or bankruptcy. Also, a sharp increase in demand could lead to a supply shortage. Any of these cases could have a negative effect on the Group’s performance.
The Daicel Group purchases a large volume of methanol, the raw material for its core products, such as acetic acid and polyacetal. We apply mechanisms to regularly purchase methanol at a relatively low price, such as entering long-term contracts and investing in methanol producing companies. Upswings in the methanol market may negatively affect Group performance.
To combat raw material and fuel price increases, the Daicel Group has been switching to raw materials and fuels that are less expensive and more stable in price, as well as reducing costs through improved manufacturing. When surging raw material prices exceed the benefits of these efforts, the Group may be able to upwardly revise product selling prices. However, there is a limit as to how much upward price revisions can absorb escalating costs.Beyond this limit, rising costs may have a negative impact on Group performance.
The Daicel Group has established a quality guarantee framework and strives to assure product safety and prevent defects. As a precaution, we also carry product liability insurance. However, in cases where products manufactured by the Company are found to be the cause of damage, the Company’s performance may be negatively impacted.
The Company routinely conducts safety and disaster prevention activities and strives daily to assure the safety of its manufacturing plants and other facilities. However, in cases where fires, explosions, or other industrial accidents or disasters occur, the Company’s performance may be negatively affected.
One of the Group’s primary manufacturing facilities, the Fuji Plant of Polyplastics Co., Ltd., is in a region that requires reinforced countermeasures for disaster prevention related to the anticipated Tokai earthquake. We conduct earthquake-training drills and take countermeasures to protect equipment there. We also practice disaster preparedness and emergency training drills at other facilities. However, in the event that significant damage is incurred by a natural disaster, Group results may be negatively affected.
Depending on the industry, product cycles may be rapid. It is possible that sales volumes may fail to reach initial expectations, R&D expenses might not be recouped and income from Daicel’s businesses could deteriorate. Moreover, cost reductions cannot always keep up with intense pressure to reduce sales prices, which also could cause income from Daicel’s businesses to decline.
In the event of excess supply caused by such factors as large-scale plants being constructed by other companies, or a drastic decline in demand caused by abnormal economic conditions, there is a chance that Daicel’s income from its businesses could deteriorate.
As stated in its Code of Conduct, the Daicel Group strives to maintain and protect its intellectual property (IP) rights and shall not infringe on the IP rights held by third parties. Based on this, the Group meticulously investigates IP-related information and adopts a strategic approach to the acquisition and management of IP rights, as well as to the conclusion and management of IP-related contracts. However, it is possible that the Group may be subject to an unexpected warning or litigation about infringement of third party IP rights, or a third party may infringe on the Group’s IP rights without permission. Any of these cases could have a negative effect on the Group’s performance.
Through its energy-saving and resource-saving initiatives, the Daicel Group works hard to prevent further global warming, reduce the environmental impact of its activities—by effectively using resources and reducing waste, for example—and handle chemical substances in an appropriate manner. Due to the tightening of environmental regulations, however, the Group may be forced to make capital expenditures or business reorganizations in order to achieve legal compliance, and this could have a negative effect on the Group’s performance.
In the conduct of its business, the Daicel Group holds large quantities of confidential and personal information. The Group is building management frameworks and conducting employee training programs to ensure appropriate handling of such information, and also constantly introduces and updates its security software to address the changing IT environment. However, unpredictable and unauthorized access by outside parties could cause such information to be leaked or altered, which could have a negative effect on the Group’s performance.