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) Mid-Term Business Plan
In February 2021, Nittobo Group formulated the "Mid-Term Business Plan" and has been promoting the specific measures set forth in the plan. Although these plans have been formulated based on information and analysis considered appropriate at the time of formulation, such information and analyses are subject to uncertainties. In the current fiscal year, the second year of the “Mid-Term Business Plan,” we steadily made strategic investments in the glass fiber and life science businesses amid a changing business environment that included rising raw materials and fuel prices and slowing growth in the semiconductor market. Simultaneously, to make effective use of management resources, we transferred the beverage business and the former site of a golf driving range that we owned and worked to reinforce the management base of the entire group for future growth. For FY2023, the final year of the Mid-Term Business Plan, the earnings targets of the Mid-Term Business Plan may not be achieved because of soaring raw materials and fuel prices, and sluggish global demand in the electronic materials field.

(2) 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, if electricity and crude oil prices fluctuated sharply due to geopolitical factors such as conflicts and disasters or changes in energy policy, Nittobo Group’s business performance could be substantially affected.

(3) Fluctuations in exchange rates
Nittobo Group conducts production activities in Japan, Taiwan, China, and the U.S., and sells its products globally. Therefore, when the yen appreciates, the competitiveness of overseas exports weakens, and when the yen depreciates, the prices of imported raw materials increase. Although we try to mitigate risk through forward foreign exchange contracts and other means, significant fluctuations in exchange rates could have a substantial impact on the performance and financial position of the Group.

(4) Procurement of raw materials
From the perspective of risk management, Nittobo Group purchases major raw materials from multiple suppliers as much as possible. However, raw material prices may fluctuate or raw materials may become difficult to obtain owing to the situation of suppliers, changes in the economic environment, geopolitical factors such as conflicts and disasters, and disruptions in the global supply chain. Such a case could have a significant impact on the Nittobo Group’s business results, by affecting production activities and other business operations.

(5) Competition with other companies’ products, new product development, and technological innovation
Nittobo Group considers its own technological 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, if our competitive advantage declines due to intensified competition from domestic and foreign competitors and the development of alternative materials for glass fiber or if the development of new technologies and products is prolonged, it could reduce the growth potential and profitability of Nittobo Group and significantly affect business performance and financial conditions.

(6) Fluctuations in demand
Nittobo Group is expanding its business globally, and even domestic sales include many products that are incorporated into customers' products and exported overseas. Therefore, if the demand for products of customers incorporating our products slows down due to various influences such as global economic trends, trade and tariff policies of each country, geopolitical factors, etc., it will affect the financial results of the Group.
In particular, the Group's Glass Fiber Division handles glass fiber yarns and cloth for IT-related printed circuit boards and semiconductor package substrates, whose market conditions fluctuate greatly, as well as composite materials for automobiles and electronic devices. The demand for these products may fluctuate significantly.

(7) Capital investments
Capital investments and periodic large-scale repairs aimed to meet demand in growth fields may affect the Group's business performance and financial position, if there is a significant change in demand forecasts, if the desired production capacity, such as productivity, cannot be achieved, or if the prices of major facility components decline sharply due to market conditions.

(8) Product defects
The Nittobo Group’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 are making efforts 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, resulting in lower shipments. Consequently, the Group’s financial results and financial condition may be adversely impacted by liability for damages due to defects in products, damage to the Group’s reputation in society, or other impacts.

(9) 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.

(10) 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, the government and several dozen companies, including Nittobo, which formerly handled asbestos, have been sued for damages by construction workers and their bereaved families. A total of 22 lawsuits are pending in Sapporo, Sendai, Mito, Saitama, Tokyo, Yokohama, Osaka, Kyoto, Takamatsu, and Fukuoka District Courts; Sapporo, Tokyo, and Osaka High Courts; and the Supreme Court. If a judgment is made against us in any of these lawsuits, it may have an adverse effect on the Group's business performance.

(11) Statutory regulations (including environmental regulations)
In carrying out the Nittobo Group’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.

(12) Risks of climate change response
Nittobo Group has set a CO₂ emission reduction target for FY2030 and is facilitating energy-saving activities, introducing renewable energy, and disclosing information based on TCFD.
In addition, we are making efforts to reduce CO₂ emissions and improve productivity through the use of low-carbon and decarbonization technologies, with the aim of achieving carbon neutrality in FY2050.
However, the Group's business performance could be affected if production and sales activities are affected by reinforced domestic and international laws and regulations related to climate change response, or if opportunities are lost due to a decline in public trust.

(13) Overseas business
Nittobo has subsidiaries in China, Taiwan, and the U.S. The Group’s financial results and financial conditions may be adversely affected by changes in factors such as politics, economy, laws and regulations, tax systems, or social trends in these countries, or by conflicts, disasters, outbreaks of infectious diseases, etc.

(14) Information security
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.

(15) Intellectual property rights including patents
Nittobo Group 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.

(16) 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.

(17) 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.

(18) Spread of infectious diseases
Nittobo Group implements risk management to prevent infectious diseases from affecting production, sales, and other activities. In addition, the Group reviews and duplicates its supply chains regularly in order to be able to respond to supply chain fragmentation. However, the spread of infectious diseases can affect the Group's business performance by impacting production, sales, and other business activities.