Our Group has established a Risk Management Committee to manage the risks involved in operations, defining risk as uncertain events that may directly or indirectly impact operations or business activities. The Risk Management Committee anticipates and categorizes specific risks, operates an emergency system by which information is transmitted promptly and appropriately in the event of an emergency, and reports to the Board of Directors on matters of risk management.
Our Group recognizes a variety of risks and uncertainties, both internal and external, that have the potential to affect its operating results and/or financial position. The main risks and the actions we have taken to address them are provided here. The main future risks and responses to them mentioned in this document are those recognized by our Group as of the end of the current fiscal year. Not all risks are covered here. There may be some risks that are unforeseeable at this time.
① Risk related to natural and other disasters
Damages or reduced operations at the operational bases of our Group or its suppliers arising from natural disasters such as typhoons, earthquakes, and floods, fires and other accidents, or the spread of new infectious diseases could impact our operating results and financial position.
In response, the Group tracks risks using the results of hazard maps, risk surveys, etc. related to natural disasters at each base, and implements countermeasures, stockpiling, disaster prevention drills, and other preparations during normal times. Additionally, the headquarters (Risk Management Committee) and each base work closely together to further strengthen the crisis management system.
Impact of COVID-19
In January 2021, we set up a COVID-19 task force headed by the president. Led by this task force, we have quickly implemented best practices for preventing the spread of infection throughout the Group, and minimized the impact COVID-19 has had on our businesses. In the year ending March 31, 2022, we offered a workplace vaccination program at the main operational bases of our Group, and helped to reduce infection risk among employees, their families, and other individuals.
Impact on management results
In the fiscal year ended March 31, 2022, the impact on operating income was approximately 3.2 billion yen due to infection prevention measures costs in each country and operating losses at factories. If the COVID-19 situation becomes prolonged, it could further impact the Group's operating results.
Impact on financial position
While there has been some movement from the proactive financial policies implemented by financial authorities in each country to counter the pandemic, currently, we recognize that there is a limited possibility that this will have a significant impact on our cash flow and financial stability. However, in the event of a major turmoil in the financial markets, there may be an increase in funding costs and an impact on new fund procurement. It is difficult to predict the impact of COVID-19, so in the short term, we will hold off on new investment activities and work on steady fund procurement.
Impact on production activities
In the event that the virus spreads and restrictions on business activities and actions are tightened by government order, such restrictions may have a significant impact on our production and sales activities, including suspension of plant operations.
Impact on supply chain
In regard to procurement, the timing at which operations resumed at Group production bases in China, Malaysia, Philippines, and other countries where the government ordered a suspension of operations and at suppliers differed. While there are currently no major issues with the procurement of raw materials, etc., depending on how the virus spreads, there could still be impacts from soaring prices and supply difficulties. In distribution, major impacts were felt from travel restrictions in each country, while a reduced number of ships and flights and longer lead times negatively impacted Group plant operations and customer shipments.
The Group is continuing to reexamine the supply chain from the standpoint of business continuity planning (BCP), including review of procurement areas, multi-sourcing, further in-house production of key parts, and review of distribution routes.
② Latent risk related to operations overseas
Our Group has 96 manufacturing facilities and 87 sales facilities in 27 countries, including regions where there are risks of unexpected changes to laws or regulations, large-scale labor disputes, acts of terrorism, war, or other occurrences that could disrupt social order.
In response, we have established crisis management manuals for our overseas bases and are working to enhance our preparation for unexpected situations. At the same time, we coordinate closely with the relevant authorities in each country and region and work to ensure the safety of the companies and employees in the event of an emergency. In addition, we are working on gaining recognition as a community-based company not only from the relevant authorities but also from local residents by actively engaging in social contribution activities in each area.
With a diverse business portfolio and global production bases that complement each other, we have established a risk diversification system that can maintain revenue even during environmental changes.
Russia's aggression against Ukraine
Regarding impacts from Russia's aggression against Ukraine, supervisors in each country are providing daily analyses and reports on sales and credit collection conditions, purchasing and payment conditions, distribution conditions, economic and financial conditions, and various others. We also have a system in place through which upper management can, based on these analyses and reports, immediately determine and implement a response when required.
The Group owns business sites in Russia and sales companies in Europe that sell to Russia and Ukraine. However, these businesses only account for approximately 0.3% of the Group's consolidated net sales, and so there are no major impacts on Group results.
The aggression has led to future concerns over soaring raw material prices, lower gas supplies, global supply chain issues, and more, and so we will continue to carefully watch over changes in the state of affairs.
③ Risk associated with exchange rate fluctuation
Sudden, unpredictable fluctuations in the currencies may impact our operating results and financial position because a significant portion of our consolidated net sales and production occur outside Japan. For this reason, we have entered into currency exchange contracts based on pre-established rules to hedge against the risk of sudden currency exchange rates in the future.
④ Risk associated with sudden changes in market environment and low-priced competition
The principal markets for our Group products, including those for PCs and peripheral equipment, information and telecommunications equipment, household electrical appliances, automobiles, and aircraft parts, are intensely competitive both in and outside of the country and are subject to significant fluctuations in demand. A sudden decline in demand or price competition from low-priced products made overseas could impact our operating results and financial position.
For this reason, we have established a management strategy of reinforcing core businesses, diversified niches (Eight Spears), and generating synergy through the integration. Under this strategy, we strengthen credit management by such means as avoiding the risk of relying too much on individual customers as much as possible and negotiating maintenance activities with suppliers that have questionable credit. At the same time, we address the risk of changes in the market environment and low-price competition by focusing on creating one-of-a-kind, high value-added products that do not get caught up in price competition.
⑤ Risk related to increased raw materials and logistics costs
Our Group procures various raw materials from suppliers and outsources the storage and transportation of products to logistics providers. Damages, pandemics, bankruptcies, capacity reductions, strikes, accidents, illegal activities, regional or international conflict and other such occurrences at suppliers or logistics providers may disrupt our supply and have a significant impact on the Group's production and sales activities. In particular, from a medium- to long-term perspective, Russia's aggression against Ukraine is expected to cause instability in the supply of energy and raw materials and in turn supply chain issues.
We have established rules for procurement and logistics divisions as a countermeasure for this risk, and we are working to secure a stable supply chain and reduce risk by diversifying and consolidating suppliers and logistics providers as appropriate. In addition, in order to build healthy partnerships with our suppliers, we have established a Basic Procurement Policies. We start new business relationships after confirming that the supplier agrees with our thinking on material procurement and is capable of maintaining ongoing trade, observing our procedures and standards related to chemical substances contained in our products, and consenting to the MinebeaMitsumi Group CSR Procurement Guidelines.
⑥ Risk related to disputes over intellectual property and flooding of the market with counterfeit products (knock-offs)
There is a risk that a third party may bring a lawsuit against us in relation to our products for infringement of intellectual property rights. In addition, were counterfeits of our products to be distributed, it could impact our sales and harm our brand or credibility.
In order to reduce the risk of lawsuits related to infringement of intellectual property rights, we research the intellectual property rights of other companies during the development and design stage and address intellectual property rights that could present a problem. Furthermore, we have registered our trademarks with customs and have established a system for monitoring counterfeit products. We also actively acquire intellectual property rights for our newly developed products. The Patent Committee manages and implements the above actions as appropriate.
⑦ Legal risk
As we engage in a wide range of business activities in Japan and overseas, serious disputes and lawsuits could potentially arise between our Group and its customers, consumers, suppliers, competitors, governments, and others in relation to contract violations, illegal activities, or other matters.
We have established Guideline for Consultations with the Legal Department in order to prevent serious disputes and lawsuits. Important management matters and contracts requiring legal review must be brought to the Legal Division in Japan and overseas beforehand. In addition, in the event of a serious dispute or lawsuit, the Legal Division and legal advisors will play a central role in coordinating with the related internal departments to resolve the dispute/lawsuit appropriately and in a timely manner. However, there is a risk that lawsuits or other actions with the potential to affect our operating results and/or financial position may be brought against us in the future.
⑧ Risk related to environmental laws and regulations
Our business is subject to various environmental laws and regulations that are in effect in the regions where we operate. Although we pay due attention to ensuring compliance with all such laws and regulations, we could be subject to losses in the event that an incident involving environmental contamination were to occur or in the event that the possibility of such an incident were to arise.
For this reason, we have established an environmental management system (Environment Management Committee) under the MinebeaMitsumi Group Environmental Policy and assigned environmental managers to promote strict activities to prevent environmental pollution during normal times and address such risk.
Further, policies aimed at achieving a decarbonized society could cause production costs to increase and in turn the need to change raw materials.
As such, while carefully monitoring policy movements, we will seek to respond to climate change-related risks and opportunities through support for the TCFD, etc., and take the lead in shifting to a business model ideally suited to a decarbonized society.
⑨ Risk related to M&As and alliances
Our Group has positioned M&As and alliances as one of its most important measures and is promoting them accordingly. However, there is a risk that they may not generate the initially anticipated effect due to changes in the market environment or strategies that are in conflict with those of alliance partners. In order to address such risks, our Group places priority on harmonization of human resources and organizations in M&As and mutual utilization of knowledge in alliances to create synergy. However, if the acquired company or alliance partner's business suffers a greater-than-anticipated decline in profitability or deterioration of its financial position due to changes in the business environment, this could impact our operating results and financial position.
① Risk related to compliance
We engage in a wide range of businesses all around the world and are subject to the laws and regulations that are in effect in each region. As such, there is a possibility of future legal violations, and in addition, changes in laws and regulations, including the interpretation or enforcement thereof, may make compliance more complex and could even incur higher costs related to compliance.
Our Group has established the MinebeaMitsumi Group Code of Conduct for labor, safety and health, environmental protection, and ethical management along with the MinebeaMitsumi Group Officer and Employee Compliance Guidelines, which provide specific standards for all officers and employees to observe. To ensure thorough compliance with these, we have established a Compliance Committee and have built a system for verifying that the Group's legal compliance structure is properly managed. On the practical side, the department in charge stipulated within the MinebeaMitsumi Group Officer and Employee Compliance Guidelines is in charge of complying with laws and regulations in operations and the Internal Auditing Office conducts audits. Meanwhile, on the internal control side of things, the Internal Control Promotion Office has primary responsibility for ensuring the reliability of financial reporting. These organizations work to increase the effectiveness of legal compliance throughout the entire Group. Further, in setting up an internal reporting system, we are working to reduce compliance-related risks.
② Risk related to quality problems
Our products are used in applications that require a high degree of precision in the general market and many industrial fields (including products that could affect human health and safety such as automobiles, aircraft, and medical devices). We recognize that social responsibility we bear and have a system in place to ensure our products are of the highest quality. At the same time, we have a mission (expectations) to provide customers with environments, health, peace of mind, and safety by selecting primary materials, parts, and secondary materials and engaging in design and development that takes the application into careful consideration. If any of our products were found to be defective and resulted in a serious accident in the market, the suspension of our customers' manufacturing operations, or a product recall, we could incur significant expenses or lose public confidence, both of which could result in a material adverse effect on our operating results and financial status.
We have implemented the countermeasures below, fully recognizing our social responsibility based on the MinebeaMitsumi Group Quality Policy.
- Thorough action on lessons learned from quality problems (prevention of occurrence and recurrence)
- Investigation and verification in design stage and strengthening of management structure within supply chain
- Thorough communication of and compliance with various laws and regulations and customer requirements
- Sharing of information and deployment of measures through company-wide meetings, on-site audits, etc.
③ Risk related to information security
Through the course of our business operations, we obtain large amounts of important information, including personal information. While we maintain information security policies that prevent the undesired disclosure as well as unintended use of information, a security breach could occur due to unforeseen circumstances. Addressing such an incident could incur huge losses and expose us to the risk of losing public confidence.
To reinforce the Group's information security system, we have therefore established the Security Promotion Office, an organization dedicated to implementing cyber security measures.
The Company's Chief Information Security Officer is director of the Security Promotion Office, and is tasked with improving security measures, formulating and promoting strengthening measures, responding to cyber incidents, and in-house security education. Further, we have put in place a system for verifying that our information security system is operating properly, which includes formulating an Information Security Policy and establishing an Information Security Committee. We also implement information security education and administer tests to ensure comprehension, working to prevent information leaks resulting from loss or theft of devices, carelessness, etc.
In addition to the above, we address problems with security vulnerabilities in the network devices, computers, servers, etc. used in our operations by updating to the latest versions that have been confirmed to be stable. This is done as a measure to prevent suspension of operations and information leaks due to computer viruses, malware, unauthorized access and other cyber attacks or system intrusions. We have also installed anti-virus and anti-malware software and introduced 24 hours a day, every day information security system that utilizes AI to ensure proper operations.
④ Risk related to research and development
Our Group conducts research and development activities that include basic research, development of elemental technology, product development, and production process development so that it can continuously bring new products to market and contribute to the achievement of future sales and revenue targets. However, in the event that we were unable to bring our R&D efforts to fruition or a competitor were to create a superior product to ours, this could prevent us from achieving future sales and revenue targets, thereby impacting our operating results and financial position.
There are no guarantees that our R&D efforts will come to fruition. This must be considered, so we engage in effective and efficient management of R&D project progress and costs according to Research and Development Management Manual.