Risk Factors

（1）Natural disaster, infectious disease and accident risks

• Business continuity and recovery from natural disasters

  Large natural disasters and accidents, including earthquakes and typhoons, may cause severe damage to employees and production facilities of the Group and its suppliers, which may have an adverse impact on the Group’s business performance and financial conditions.
  We have proactively taken measures to minimize potential damage from natural disasters and accidents that would threaten our business continuity, by enhancing the resistance of our facilities against disasters, preparing a business continuity plan, diversifying procurement sources, developing and integrating back-up systems at production bases, maintaining the appropriate inventory levels, and obtaining insurance coverage.

• Infectious and communicable diseases

  The spread of an infectious or communicable disease may restrict our business operations and our stakeholders’ activities, undermine customer trust due to a failure in hygiene control at our facilities, or cause reputational risk due to the spread of rumors. These situations may have an adverse impact on the Group’s business performance and financial conditions.
  We have developed a group-wide system to take various measures to reduce the infectious disease risk amid the spread of infection. Focusing mainly on maintaining public health, we will carry out a certain level of infection preventive measures to ensure business continuity while protecting employees’ health. We have also built a database that allows the entire group to communicate information relating to infectious diseases.

• Occupational accidents and health and safety

  The shutdown of operations as a result of a labor-related law violation or the occurrence of an occupational accident may have an adverse impact on the Group’s business performance and financial conditions. This may also increase reputational risk, threatening the Group’s business continuity. To ensure full compliance with labor-related laws and regulations and complete management of occupational health and safety, the Group’s Guidelines of Behavior, established as standards for all group members to follow, explicitly refer to “maintenance of health and safety” for employees, aiming to create a workplace where everyone can work in peace.

（2）Compliance Risk

• Compliance

  With growing emphasis on corporate social responsibility in recent years, all businesses are required to operate in full compliance with the rules and regulations and improve business performance through an efficient and appropriate allocation of business resources while avoiding management risks.
  In light of this situation, we recognize that the enhancement of compliance system is one of the most important management issues, and have been making efforts to achieve this goal across the Group. However, we also admit that it is impossible to completely eliminate the risk of being blamed for failing to fulfill our social responsibility because of insufficient risk control framework. The materialization of such a risk would increase reputational risk and severely damage the credibility or reputation of the Group. We therefore have been enhancing our compliance framework by implementing the following measures:

  • Formulate the Toyo Seikan Group Code of Conduct and Guidelines of Behavior as common standards of activities for the Group to comply with and implement, and work on education of its officers and employees for their full understanding.
    ＜Reference＞
    Toyo Seikan Group Code of Conduct and Guidelines of Behavior
  • Establish the Group’s compliance hotlines as an internal reporting system, and disseminate information about the system to the employees with posters and self-check cards.
  • Establish the Group Risk and Compliance Committee to lead compliance-related activities across the Group, and conduct education programs for officers and employees under its supervision.
  • Conduct the month-long Group Compliance Promotion Campaign in October every year for raising awareness about compliance through educational activities.
  • Transmit information to the group members to ensure their understanding by regularly publishing the Compliance News Letter, which contains internal and external information on compliance, and by using emails and internal database.
  • Create compliance risk maps to allow significant domestic subsidiaries to identify and analyze their respective risks.
  • Designated April 20 as Day of Renewed Commitment to Competition Law Compliance, to further strengthen the Group’s framework for compliance with laws and regulations. On the day every year, the presidents of the Company and its group companies send all employees a message to remind them about their compliance responsibilities.

  On top of these measures, we preemptively take action against antitrust law-related risks that would have a particularly significant impact on the Group’s business continuity in the event of their occurring. We remind newly assigned presidents of group companies to comply with laws and regulations, regularly examine and check the state of compliance with relevant internal rules, and provide employees with educational programs by career level, aiming to enhance our compliance management framework to ensure no violation of the Antimonopoly Act. To comply with anti-corruption laws and prevent the occurrence of corruption, we reexamine relevant internal rules and raise awareness of the rules among group members, review the status of our compliance management, and provide group members with educational programs.

• Human rights violations and discrimination

  Human rights violations or discrimination occurring in the supply chain of the Group or its suppliers or the Group’s failure to meet human rights requirements of society and stakeholders may destroy its social trust.
  To prevent this risk, the Group has established the Toyo Seikan Group Human Rights Policy based on the United Nations Guiding Principles on Business and Human Rights. The policy serves as a guideline for the Group to fulfill its responsibilities in respect for human rights. We have worked to disseminate the policy to the officers and employees and provided educational programs for group members to properly understand human rights. In addition, we have established the Toyo Seikan Group CSR Guidelines for Suppliers, which contain basic practices we ask our suppliers to observe in order to aim for a sustainable society as an entire supply chain. We are promoting the suppliers’ understanding of the guidelines and asking for their cooperation in conducting self-assessments.

（3）Business Management Risk

• Fluctuations in economic conditions

  Global and domestic economic recession or stagnation, an aging and shrinking population and a resulting slowdown in consumer spending, and currency market fluctuations could reduce the Group’s sales and profit.

• Fluctuations in production costs

  Fluctuations in raw material and energy prices, labor and logistics expenses and other production costs for the Group's operations due to fluctuations in economic conditions, including foreign exchange rates, affect the Group's business performance and profitability.
  We are introducing a pricing scheme that allows to link our sales prices to raw material prices mainly for metal and plastic products in our packaging business. We are also working to pass on to customers past and ongoing increases in energy costs as well as expected increases in labor and logistics costs. Despite these efforts, higher production costs may reduce the Group’s profitability, depending on the degree of achievement and progress of such efforts.

• Procurement of raw materials

  Raw materials purchased by the Group, whether imported or domestically procured, use crude materials produced overseas. The Group's business performance and profitability will be adversely affected by difficulties in procuring raw materials due to a global logistics disruption caused by global political and economic turmoil, natural disasters or equipment failures in global supply chains. In order to stably provide products and services that are indispensable to people’s daily lives, we strive to ensure stable procurement by collecting a wide range of information on raw material suppliers and diversifying suppliers.

• Intensifying price competition
  

  Price competition is intensifying in the packaging container market, where the Group mainly operates, while more customers are self-manufacturing their containers. This trend could weaken the Group’s price negotiation power and increase downward pressure on product prices.
  To maintain an appropriate level of profit, we will seek to properly identify changes in consumer needs and differentiate ourselves from competitors by developing a variety of unique and innovative products and services using our early-stage ideas and technologies with all kinds of materials.

• Research and development (R&D)
  

  Although continuous and effective investments in R&D activities are essential for the Group, the results of the investments are uncertain and a larger R&D investment does not necessarily guarantee desired results. In particular, if R&D investments for new products and technologies do not generate sufficient returns, or if the R&D data accumulated within the Group are not effectively used for developing new products and technologies due to a lack of data sharing among group companies, the expected future growth and profitability of the Group could decline.
  In order to meet diversifying market needs, the Group’s research divisions, including Corporate R&D, Technical Center of Toyo Seikan Co., Ltd., and R&D Center of Toyo Kohan Co., Ltd., are actively engaged in R&D activities to develop next-generation technologies. We regularly conduct monitoring of individual projects. We also aim to take full advantage of the abundant R&D data accumulated within the Group through technological exchanges among group companies.

• Investment and lending (Corporate acquisitions / capital participation / capital investment /etc.)
  

  The Group actively seeks opportunities for corporate acquisition and capital participation with an eye on strengthening its operation base and expanding business, while it continues to make active and effective investment in manufacturing, sales and R&D activities to further improve our corporate value. However, results of those activities that do not fully meet expectations may significantly affect the Group’s business performance and profitability.
  We have established the Investment Management Committee to control risks related to investment and loan activities, implementing close examination by clarifying decision-making procedures and criteria, making post-evaluation, and setting criteria for whether to continue or exit the project based on the evaluation results. The committee also conducts regular monitoring of existing projects and, if the evaluated project has not yielded the expected results and is likely to adversely affect the Group’s overall profitability, it will decide to withdraw from the project to reduce the risk of lowering future profitability.

• Digitalization
  

  While we aim to transform our value chain and expand our business fields with digital technology by developing autonomous production systems and improving operational process efficiency, delayed progress of these efforts could reduce our growth potential and future profitability.
  We have established the Group Digital Vision 2030 to further enhance our source of competitiveness through the maximized use of the latest digital technology and data infrastructure. Recognizing "advancement of data utilization" as one of the key themes of our strategy, we aim to transform ourselves into a corporation that further contributes to society with digitization.

• Customer credit concerns
  

  If a default risk emerges due to concern over the creditworthiness of a customer or business partner, and if the Group is required to post an additional loss or a provision for the potential loss, it may adversely affect the Group’s business performance and financial conditions.
  Most customers of the Group pose relatively low credit risk. Meanwhile, for reducing credit risk, we perform transactions with high risk customers by using trading companies or by shortening account receivable collection periods, and conduct an appropriate credit search on a new customer before initiating transactions.

• Recruitment and development of talent
  

  Recruiting and developing talented individuals is essential to the Group’s progress as its continuous growth over the long term highly depends on whether it has excellent leaders. Failing to recruit and develop qualified human resources may adversely affect the Group’s future growth.
  To secure talented human resources, major group companies have adopted a group-wide process for periodic recruitment of new college graduates from fiscal 2021 (ended March 2022), switching from the previous system where each group company individually recruited new graduates. Through this new scheme, we aim to obtain competent human resources for the entire Group and foster next leaders by providing career development opportunities from a group-wide perspective. Since fiscal 2017, we have also adopted a core personnel management system to develop the capabilities of selected candidates as future leaders through training programs and strategic assignment.
  Furthermore, we are increasing internal talent mobility while promoting collaboration across companies and organizations in the Group to prevent inflexibility in the workplace and foster an open work environment that accepts diversity, thereby developing a corporate culture and human resources that can continuously create new value.

• Litigation
  

  The Group’s business activities in Japan and abroad carry the risk of being sued. Specifically, we may be obliged to bear an enormous cost to compensate for damage in relation to contractual non-performance, product liability following product defects, liabilities under labor contracts with officers and employees and relevant laws, infringement of third party rights, or other liabilities.
  To reduce the risk, we aim to minimize the potential impact of a lawsuit, if it occurs, on the Group’s business performance and finances by developing a basic form of contract that clarifies liabilities to be borne by the Group. We also facilitate cooperation between the relevant operational divisions and legal experts, including the internal legal department and external specialists, and have concluded a comprehensive general liability insurance to cover the entire Group.

• Overseas operations
  

  The Group operates globally, in Asia, Europe, Americas and other regions. Changes in business environments in countries where we operate or inadequate governance systems of overseas subsidiaries could have an adverse impact on the Group's business performance and financial conditions.
  We strive to quickly and accurately understand the business conditions of overseas subsidiaries, and take timely and appropriate measures to improve identified issues with the expertise of relevant departments.

(4) Information Security Risk

• Leakage of personal information

  While the Group implements various measures to protect personal information, the risk of information leakage due to unforeseen circumstances cannot be completely eliminated. The materialization of such risk may damage the Group’s credibility or reputation and adversely affect its business performance.
  We have formulated internal regulations to manage information, and periodically conduct educational activities and training programs for officers and employees. To further enhance our information management framework, we have established the Group Information Management Committee to supervise information management across the Group, and the Information Management Committee to oversee the Company’s information management.

• Leakage of trade secrets and other confidential information

  Although we take various measures to protect trade secrets and other confidential information obtained in the course of business, a leakage of such information could occur due to unforeseen circumstances, resulting in damage to our credibility or reputation and competitiveness in the industry.
  We have formulated internal regulations to manage information, and periodically conduct educational activities and training programs for officers and employees. To further enhance our information management framework, we have established the Group Information Management Committee to supervise information management across the Group, and the Information Management Committee to oversee the Company’s information management.

• Cyberattacks and hacking by viruses

  In the event of a cyberattack by a malicious third party, systems for the Group’s operations may shut down or malfunction, and unauthorized use, information leakage and other security problems may occur with the systems. This poses a risk to the Group’s business continuity.
  The Group Information Management Committee has proactively taken measures to protect the systems used by the Group with continuous monitoring of the Group’s security status and the development of a cooperation framework with external experts.

(5) Financial and Accounting Risk

• Financing

  If there is a delay in the process to procure funds necessary for the Group’s operations, it may adversely affect the Group's business performance and financial conditions. We strive to maintain a certain level of cash and deposits on hand, obtain sufficient liquidity by diversifying funding sources and methods, and manage funding costs appropriately.

• Changes in accounting standards and tax systems

  The Japanese accounting standards have been amended from time to time in order to align with the international standards, and this trend is expected to continue. In addition, discussions are under way toward applying the International Financial Reporting Standards (IFRS) in Japan. Given such circumstances, future changes in accounting standards may have an impact on the Group’s business execution, operating results, and financial conditions. Amendments to tax systems and procedures, both domestically and abroad, may similarly affect the Group as well.
  To ensure the validity of the Group’s financial statements and other accounting documentation, the Company has been a member of the Financial Accounting Standards Foundation (FASF), participating in training and other programs provided by FASF to continuously gather information and thereby properly understand accounting standards and respond to their changes.

（6）Manufacturing and Quality Risk

Although the Group follows strict quality control standards in manufacturing and selling diversified products, there is still no guarantee that all products are completely free of defects or that no quality claims or product liability claims are brought against the Group. Unexpected massive claims for quality or product liability may cause the Group to incur significant expenses or may damage its credibility or reputation.
To reduce significant quality risks, the Company has established the Quality Administration Department to supervise the quality control divisions across the Group. Under this framework, we aim to implement social responsibility of a corporate group that provides safe and reliable products, systems and services and earns the trust of customers and society.

（7）Environmental Risk

The Group’s efforts to reduce environmental impacts of its manufacturing activities may increase its production costs. Its business activities may also cause an unexpected environmental problem, resulting in a significant cost burden to the Group to address the problem and an impact on its business performance and financial conditions.
In addition, with recent global attention drawn to the marine plastic pollution, the public is increasingly calling for reducing plastic products. Since the Group manufactures and sells plastic packaging containers, which account for a fifth of its total net sales, the future development of plastic waste issues could have an impact on its sales activities and, in turn, adversely affect its business performance and financial conditions.
To address these risks, we are developing products that help resolve environmental issues by focusing on “developing and offering products and services that are environmentally sound,” one of the key issues of the Group’s Materiality. The details of this activity are shown on our website (see the page of “Open Up! Products and Services”). We have also formulated the Eco Action Plan 2030, a set of environmental targets toward 2030, to reduce greenhouse gas emissions from our operations and supply chains as well as the use of fossil resources by reducing the weight of our plastic products and switching to alternative materials.

（8）Country Risk

As the Group operates globally, in Asia, Europe, Americas and other regions, its business performance and other conditions may be affected by an act of terrorism, political turmoil, economic and currency fluctuations, and unexpected changes in laws and regulations in foreign countries and regions.
In the event of an emergency in overseas regions where we operate, we determine how to respond to the situation based on the Group Crisis Management Rules for Overseas Operations. In starting a new business abroad, we determine whether or not to proceed the project based on country risk assessments conducted during both the decision-making and implementation stages of the project.