Business Risks

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Risks Arising from Changes in the Macroeconomic Environment

Impact on the Group
The spread of protectionism across countries, slowing economic growth in China and other emerging markets, concerns over a global economic slowdown stemming from U.S.-China tensions, the emergence of geopolitical risks worldwide, and the impact of U.S. tariff measures could all contribute to a stagnation of economic activity in these regions and potentially impair the Group’s performance. In particular, we recognize that factors such as the restructuring of supply chains that had become increasingly reliant on China, political developments in the United States, and political and economic conflicts occurring irrespective of region—each of which can influence investment decisions—constitute significant risks to our business performance.

Response Measures
As we expand our overseas business through our global five-axis framework, we have strengthened collaboration with our Group companies in various countries and established a system that enables the swift acquisition and dissemination of information. By leveraging the flexibility of our business portfolio, we can promptly shift business strategies and provide maximum support to business partners in politically unstable or economically slowing regions, thereby minimizing the risk of performance decline.

Risks Associated with an Increasing Proportion of Overseas Sales

Impact on the Group
We anticipate that the overseas sales ratio will continue to rise as we steadily execute our medium-term business plan. Accordingly, the Group’s business performance may be affected by various factors, such as international financial conditions, tax systems, exchange rate fluctuations, trends in crude oil and raw material prices, transportation costs, and capital investment trends at customer production sites. Furthermore, our overseas operations are exposed to risks stemming from unforeseeable changes in political systems and economic conditions, as well as social instability caused by changes in laws and regulations.

Response Measures
We strive to minimize the risk of a decline in earnings by leveraging the Group’s global network and extensive business relationships to promptly gather information, monitor trends and select the most appropriate transaction methods.

Risks Associated with Interest Rates and Fund Procurement

Impact on the Group
The Group aims to maintain flexible and stable access to working capital while striving to reduce interest costs. However, in times of financial market instability or if the Group’s creditworthiness deteriorates—resulting in a downgrade of the credit rating assigned by a rating agency—there is no guarantee that we will be able to secure financing on favorable terms in a timely manner. This could constrain the Group’s business operations and adversely affect its financial performance and condition. Furthermore, depending on future trends in net sales and interest rates, the Group’s financial balance may deteriorate, potentially impacting its earnings and financial position. In addition, significant disruption in major financial markets, both in Japan and overseas, could lead to increased funding costs.

Response Measures
We are committed to maintaining strong relationships with financial institutions and to building and strengthening relationships with institutional investors through timely dialogue, while also working to diversify our funding sources. In addition, we strive to ensure flexible and stable access to working capital and to reduce funding and interest costs by implementing contingency-based financial strategies and by maintaining or improving our credit rating through the preservation of a sound financial condition.

IT System Risks

Impact on the Group
To safeguard these systems and data, the Group implements advanced security measures, performs computer system data backups and takes other protective measures. However, major disruptions to systems or communication networks resulting from natural disasters, computer viruses, unauthorized access, power supply constraints, major power outages, system malfunctions, or technical failures, could significantly impact our business operations, including order management with business partners. Such disruption could lead to substantial costs, serious damage to the Group’s reputation, and negatively impact the Group’s business performance and financial position.

Response Measures
As part of its business continuity measures, the Group utilizes highly secure data centers and cloud services to protect its systems and data. Monitoring systems have also been installed on endpoint devices used by officers and employees to defend against computer viruses and unauthorized access. In preparation for potential disruptions to business operations caused by power or telecommunications infrastructure failures, the Group has established a Business Continuity Response Manual, which outlines procedures to swiftly relocate to a safe area and minimize downtime.

Business Development Risks

Impact on the Group
The Group’s business model has evolved from a specialized agency for machinery manufacturers into a broader service provider, offering production support and technical assistance for clients’ factories in response to ongoing technological innovation. Alongside this shift, our business scope has expanded from transactions involving only tangible goods to those involving services and solutions. Individual project sizes have grown, and deals are increasingly complex and long-term in nature.

As such, we recognize several risks related to market and business execution—such as accidents arising from the growing number of large-scale construction projects, the resulting legal liabilities and costs, and declines in market value due to technological obsolescence. In recent years, remote installation, test operations, and acceptance inspections for delivered equipment have become more common. These can lead to unforeseen post-inspection issues such as malfunctions, items requiring adjustment, or unverified points—resulting in not only technical troubleshooting but also contractual obligations and additional costs.

Response Measures
To address these risks while enhancing our ability to seize business opportunities, we are taking measures to strengthen our market responsiveness and competitiveness. These include hiring highly skilled engineers, improving personnel evaluation systems, and reinforcing legal and administrative departments involved in contract management.
In addition, we are committed to accumulating know-how, quickly analyzing successful case studies, and further enhancing the functions of our legal and administrative departments to mitigate future risks.

Credit Risks

Impact on the Group
As of the end of the consolidated fiscal year under review, the Group’s total accounts receivable amounted to ¥51,686 million, accounting for 31.8% of total assets. As such, the Group is exposed to the risk of incurring losses in the event of a deterioration in a customer’s creditworthiness or bankruptcy. Should there be a liquidity crisis, a chain-reaction bankruptcy caused by a worsening economic environment, or financial uncertainty involving a major customer, the Group’s business performance and financial condition could be adversely affected due to the potential inability to collect outstanding receivables.

Response Measures
In accordance with internal regulations on transaction authority and risk management, the Group implements necessary approval procedures for setting credit and transaction limits, obtains collateral or guarantees as needed based on the counterparty’s creditworthiness, and undertakes risk hedging measures such as receivables securitization.

Risks in Long-Term Strategies and the Medium-Term Business Plan

Impact on the Group
The Group has formulated a long-term growth strategy and a medium-term business plan. Since these strategies extend over the medium to long term, the associated risks also span a prolonged period. In addition, if the business-related or other investments we proactively pursue fail to generate sufficient returns, the Group’s business performance and financial condition could be adversely affected.

Response Measures
To minimize such risks, we are enhancing our investment evaluation capabilities under the leadership of the corporate strategy division, whose functions are being reinforced. Following the execution of each investment, we conduct progress analyses through regular reviews, assess and decide on the necessity of any changes, and promptly disclose relevant information.

Risks of Disaster

Impact on the Group
Disasters such as earthquakes, typhoons, fires, or outbreaks of infectious disease may cause damage to the Group’s offices, factories, or personnel, potentially disrupting sales and production activities. In cases of significant damage, the Group’s business performance and financial condition may be adversely affected. Moreover, if such disasters seriously impact the Group’s key business partners, resulting disruptions to their operations or production activities could also have a negative impact on the Group’s performance.

Response Measures
In addition to formulating a Basic Business Continuity Plan, the Group has developed a disaster-specific Business Continuity Response Manual, implemented a safety confirmation system, and carried out regular disaster drills.

Sustainability-Related Risks

Impact on the Group
We recognize that the various risks identified in the TCFD recommendations may have a significant impact not only on the Group but also throughout its supply chain. These risks include not only direct financial impacts such as increased tax burdens, but also technical issues related to the products we handle, a decline in market demand, and a consequent drop in corporate valuation—all of which could adversely affect the Group’s business performance and financial condition.

Response Measures
The Group has established a dedicated organization specializing in climate-related issues. This body is responsible for scenario analysis, impact assessment, and ongoing monitoring. At the same time, we are actively contributing to the realization of a decarbonized society and addressing environmental challenges by providing environmentally conscious products and services to our manufacturing clients across the supply chain.

In addition to climate-related risks, we recognize that evolving standards and market dynamics concerning environmental degradation, human rights, and diversity may reshape demand and competitive conditions in our business areas. Delays in responding to such changes could negatively affect the Group’s performance. Accordingly, we are working to establish internal standards that align with the supply chain due diligence practices adopted by global companies.