Business Risks

Nittobo Group has established the Group's basic risk management policy and system in the Rules for Risk Management. Based on the basic policy and system, the Risk Management Committee chaired by the Representative and Chief Executive Officer appropriately manages various risks involved in our business and prevents such risks from becoming tangible. The risks that may affect Nittobo Group's operating results, financial condition, etc. are as listed below.

(1) Effects of fluctuations in IT-related demand
Nittobo Group's Glass Fiber Division handles glass fiber yarn and cloth for printed circuit boards used in IT-related industries, whose market conditions fluctuate greatly. We are working to change the business structure mainly by expanding business in areas with less volatile market conditions and by developing high value-added products. Nevertheless, depending on trends in IT-related demand, the Group's financial results may fluctuate significantly.

(2) Effects of fluctuations in exchange rates
Nittobo Group is striving to reduce risks associated with high ratio of overseas sales at the Glass Fiber Division chiefly through forward foreign exchange contracts while closely watching the trends in exchange rates. Nevertheless, the Group's financial results may be affected by exchange-rate fluctuations.
We are striving to differentiate the products Nittobo Group handles from those of other manufacturers mainly by quality, functionality, and service, but there is still some competition from overseas products. Depending on the trends in exchange rates, our products may be affected by rises in imports in the domestic market.

(3) Effects of fluctuation in energy prices
Nittobo Group uses LNG gas and electricity in manufacturing its main products such as glass fiber and glass wool. Therefore, we carry a risk associated with fluctuations in energy prices. We are striving to mitigate this risk by converting to less expensive energy and taking energy-saving measures. However, changes in energy prices associated with fluctuations in electricity costs and oil prices may have a substantial adverse effect on our business.

(4) Effects associated with the occurrence of disasters
Nittobo Group is managing risks by implementing precautions against disasters, accidents, and other irregularities. We regard the safety and health of our employees as the foundation of our business management. Therefore, we observe various laws and regulations and carry out committee activities at each site in order to create safe and comfortable workplace environments. We also conduct BCP training and earthquake/fire drills on a regular basis. However, should natural disasters, such as massive earthquakes, or sudden accidents cause heavy damage to production equipment and other facilities or problems in the supply of power, fuel or water, the financial results may be affected greatly as production and other operations will be hindered.

(5) Risk concerning the spread of infectious diseases including novel coronavirus
Nittobo Group implements risk management to be prepared for infectious diseases including novel coronavirus. We make regular reviews of our supply chains, reserve necessary medical supplies such as masks, and encourage employees to work in staggered shifts and work from home to avoid situations where people are in too close contact in closed spaces/crowded places. These steps help us to ensure the safety and security of all stakeholders such as customers, business partners, and employees. The Groups’ business and financial condition may be affected if the spread of the infection causes a disruption in the supply chain suspension of our production, sudden drop of our demand, or decrease of our funds.

(6) Effects associated with the procurement of raw materials
From the perspective of risk management, Nittobo Group purchases major raw materials from multiple suppliers as much as possible. It may become difficult to do so, however, because of the situation of suppliers and changes in the economic environment. In such cases, the inability to procure raw materials may affect the production of the Group, thus significantly affecting its financial results.

(7) Risk related to statutory regulations (including environmental regulations)
In carrying out the Company’s businesses, we give top priority to observing statutory regulations in Japan and abroad. We have established a special department (Risk Management Department) that collects information on statutory regulations in Japan and abroad and responds accordingly. In addition, we implement compliance training across the Group to prevent impacts that may affect the Group’s social trust and reputation. However, we may incur costs to respond to changes made to various regulations, which may affect the Group’s financial results and financial condition.

(8) Effects associated with information security and compliance
Nittobo Group has introduced systems resistant to cyber attacks to ensure information security and is making all-out efforts to protect personal information and confidential information under the company-wide management system and to conduct audits of these systems periodically. In addition, by providing internal training in compliance and taking other measures, we are striving to preclude possible adverse effects on our trustworthiness and reputation in society. However, partly because society's expectations regarding corporate social responsibilities are growing each year, if the Group fails to respond to problems such as information leakage promptly and properly, our trustworthiness and reputation in society might be affected, resulting in significant effects on the Group's financial results.

(9) Risk related to overseas business
The Company has subsidiaries in China, Taiwan, and the U.S. The Group’s financial results and financial condition may be adversely affected by changes in factors such as politics, economy, laws and regulations, tax system, or social trends in these countries.

(10) Risk related to competition against other companies’ products, new product development, and technological innovation
The Company considers its own technology and development capabilities to be a source of sustainable growth. We strive to maintain our competitive edge as a global leading company, especially in the glass fiber business, and keep this competitive edge by further focusing on research and development. However, there are diverse competitors both in Japan and abroad, and consequently, we carry the risks that our competitive edge may be threatened and that competitors may develop and market new products that exceed ours in terms of performance. Moreover, we anticipate the risk that the Company’s glass fiber may be replaced by materials other than glass fiber as a result of technological innovation.

(11) Risk related to defects in products
The Company’s glass fiber business is located upstream in the supply chain. In the case of defects in the Company’s product, widespread impacts may occur. Therefore, we have established a quality assurance system to prevent the production of defective products. In addition, the in vitro diagnostic reagents that we handle in the life science business use plant-derived raw materials, and we face the challenge of maintaining stable quality. Our subsidiary in the U.S. makes the raw material, antisera, and we manufacture the final products in Japan, which ensures consistent quality control across the Group. However, we cannot completely eliminate the risk that a quality issue may arise due to an unpredictable cause. Consequently, the Group’s financial results and financial condition may be adversely affected by liability for damages due to defects in products, damage to the Company’s reputation in society, or other impacts.

(12) Risk related to intellectual property rights including patents
The Company is striving to obtain intellectual property rights including patents, which are beneficial to its business development in the future. At the same time, in carrying out our business operations, we conduct research on other companies’ intellectual property rights and make efforts not to cause any problems by violating these rights. However, the Group’s financial results and financial condition may be affected by disputes over intellectual property rights.

(13) Risk related to retirement benefit obligations
The amount of the Group’s employee retirement costs and obligations is calculated based on assumptions used in the relevant actuarial calculations, such as the discount rate, and assumed rates of long-term return on pension assets. If actual results differ from the assumptions, the Groups’ business and financial condition may be affected.

(14) Risk related to investment securities
If the values of investment securities including stocks held by Nittobo Group substantially decline, they may affect the Group’s financial results and financial condition due to valuation losses.

(15) Lawsuits
Nittobo Group may become a party to lawsuits and other legal actions in the course of its business inside and outside the country. If serious lawsuits are raised against the Group, or if restrictions are placed on the execution of business by the Group, they may have adverse effects on its business, financial results, and financial condition.

As of the end of the current consolidated fiscal year, construction workers and their surviving families have instituted lawsuits against the national government and dozens of companies, including Nitto Boseki, which formerly handled asbestos, to demand damages. Currently, a total of twelve such lawsuits are being deliberated in the Sapporo, Tokyo, Osaka, Kyoto, and Fukuoka District Courts and the Sapporo and Tokyo High Courts as well as Supreme Court.