Risk Management
Risk Management Basic Principles
Our company has established "Risk Management Regulations" to develop a management system for preventing risks that may arise in our business activities, and to respond to risks that have materialized. Company-wide risks such as changes in the business environment, climate change, natural disasters, incidents and accidents, and information system failures have a significant impact on the sustainability of our group's business, and are therefore managed collectively by the Sustainability Promotion Committee.
Specifically, we visualize the risk items that have a high degree of impact on our group and that occur frequently using a risk map, report the results to the Board of Directors, and then consider and implement countermeasures for each high-priority risk item.
Risk Map Creation
- Our risk items extracted by sector
Hazard risk
Natural disasters, industrial accidents, fires, accidents
Operational risk
Business risks (development, procurement, manufacturing, sales, quality, information systems), ESG risks (environment, social, and governance)
Strategic risks
Business strategy, human resources strategy, development strategy, sales strategy, real estate strategy
Economic risks
Exchange rate fluctuations, economic fluctuations, interest rate fluctuations, geopolitical risks
- Based on the above risk items, we conducted a risk assessment (utilizing external consulting) for our full-time directors, executive officers, and all department heads, and carried out quantitative and qualitative evaluations.
- Based on the results of the risk assessment, a risk map was created focusing on the impact and frequency of occurrence of each risk item, and priority risks requiring countermeasures were identified.
Business Risks
The following are the main risks that management recognizes as potentially having a significant impact on the financial position, operating results, and cash flows of the Group:
Exchange rate fluctuations
Overseas sales account for over 95% of our group's consolidated sales, with the vast majority concentrated in the European and American markets, making us susceptible to exchange rate fluctuations in the US dollar, British pound, and euro. Furthermore, exchange rate gains and losses may arise from the translation of receivables and payables at the end of the fiscal year. While we employ risk hedging measures such as forward exchange contracts and increased foreign currency-denominated purchases, fluctuations in exchange rates exceeding our group's expectations could impact our performance.
Fluctuations in raw material prices, logistics costs, and tariff rates
The main raw materials for the products manufactured by our group are steel materials such as steel plates, and steel prices fluctuate according to market conditions. If steel prices rise sharply and manufacturing costs increase, it may affect our group's performance. In addition, our group exports construction machinery to overseas countries, including Europe and the United States, by sea transport, and if logistics costs such as sea freight rates rise sharply or if there are changes in tariff rates, it may affect our group's performance. As countermeasures, we are promoting cost reduction measures such as rationalizing production lines and reviewing sales prices.
Parts procurement
Our group's products consist of components such as engines, hydraulic equipment, electronic components, fabricated metal products, and rubber products. If, for any reason, it becomes difficult to procure these components from suppliers, and our group's production activities are restricted, it could affect our group's performance. As a countermeasure, we are promoting risk diversification by proactively reviewing our suppliers and securing parts from multiple suppliers through cross-departmental efforts centered on Procurement Department and R&D Department.
Natural disasters etc.
In the event of a major earthquake, natural disaster, fire or other accident, infectious disease outbreak, or other social disruption that halts or hinders the business activities of our group, suppliers, or customers, our group's performance may be affected. As a countermeasure, we have taken out various types of damage insurance, strengthened the earthquake resistance of our head office factory, and formulated a Business Continuity Plan (BCP) to quickly restore operations in the event of an emergency such as a natural disaster.
Economic and market conditions
Our group's products are widely used in small-scale civil engineering projects in residential areas (urban civil engineering projects). Specifically, this includes foundation work for residential buildings, infrastructure projects such as water and gas pipes and roads, and public and private construction investments in factories, commercial facilities, and public facilities. Changes in these market conditions and needs can affect our group's performance. To address this, we monitor the market environment to avoid inventory shortages or overproduction, strengthen our customer-centric approach to ensure we don't misjudge market needs, and reflect these findings in new product development.
Competitors
The construction machinery industry is highly competitive, with numerous rivals worldwide. If competitors develop and introduce products that surpass ours in terms of quality, performance, and price, and our group's market share declines, it could impact our group's performance. To address this, we are striving to differentiate ourselves from competitors by emphasizing the superiority of our products in terms of quality and performance, and by expanding our sales network to increase our market share.
Debt management
If a customer's financial condition deteriorates and bad debts occur, it could affect the performance of our group. As a countermeasure, in addition to risk hedging using financial institutions, we obtain financial information from our customers, set credit limits according to their management situation, and manage credit risk.
Securing personnel
For our group to continue growing, we need to continuously introduce new products to the market. Therefore, strengthening our research and development capabilities, especially securing highly skilled personnel in development, is crucial. Equally important is strengthening our sales and management systems, which also require securing talented personnel. However, if we are unable to secure sufficient personnel, it could negatively impact our group's performance. As a countermeasure, based on the strategies outlined in "Section 2: Business Overview, Section 2: Sustainability Approach and Initiatives, Section 3: Human Capital," we will work to improve employee motivation and secure talented personnel by building a personnel and compensation system that encourages employees to thrive, strengthening education and training, implementing health management practices, and improving work-life balance.
Environmental regulations, climate-related regulations, and other public regulations, etc.
Our group is subject to various environmental regulations, other public regulations, and tax systems. Furthermore, efforts to reduce greenhouse gas emissions are being strengthened worldwide, and if unexpected regulations are put in place and we are slow to respond, it could affect our group's performance. As a countermeasure, we are gathering information on these regulations and, based on the strategy related to "Section 2 Business Overview, 2 Sustainability Approach and Initiatives, 2 Climate Change," we are evaluating the risks and opportunities that global warming brings to our business, formulating and implementing long-term management strategies through scenario analysis, and working to disclose information as recommended by the TCFD.
Concentration of production bases
Our group's main production bases are concentrated in the northern part of Nagano Prefecture. If our production facilities are damaged by natural disasters such as earthquakes or accidents such as fires, operations may be interrupted, and production and shipments may be delayed, which could affect our group's performance. As a countermeasure, we are considering diversifying our production bases both domestically and internationally in the medium to long term, and in September 2022, a factory began operations in South Carolina, USA.
Product Quality
While our group takes great care to ensure the quality and safety of our products, any quality or safety issues with these products could result in liability for damages, potentially impacting our group's performance. To address this, we are committed to further improving quality and, as a risk hedge, we have product liability insurance.
Information Security
In addition to cyberattacks from external sources, unforeseen circumstances such as equipment malfunctions, human error, internal fraud, and system failures may cause stagnation or delays in our group's business activities, leakage of confidential information, and loss, destruction, or alteration of important data. This could lead to a reduction in production and sales, liability for damages, and a decline in brand value and social credibility, potentially impacting our group's performance. To address this, we have established an Information Security Committee to build a governance system for information security across the entire group, implement preventative measures and training, and respond to security incidents. Each department head is responsible for building information security systems within their respective departments and plays a leading role in implementing the preventative action plans formulated by the Information Security Committee. Furthermore, IT Department is responsible for building the systems necessary for maintaining and managing information security.
intellectual property
If our group's intellectual property rights are infringed, or if our group is prosecuted by a third party for intellectual property infringement, it could affect our group's performance. To address this, we have established an intellectual property department and are working in cooperation with external expert organizations.
Human rights issues
Our group recognizes respect for human rights as a crucial management issue in our business activities. There is a risk of unintentionally participating in human rights violations (forced labor, child labor, discrimination, inappropriate working conditions, etc.) in our business activities, including our domestic and international supply chains. If these risks materialize, resulting in liability for damages or a decline in brand value and social credibility, it could impact our group's performance. As a countermeasure, we have commenced human rights due diligence this fiscal year. This is an ongoing process to identify and assess negative impacts on human rights within our group and supply chain, implement preventive and mitigation measures, and verify their effectiveness. Because it is difficult to address all human rights issues simultaneously, we will prioritize and narrow the scope of our efforts. We will continue to gradually expand the scope of our due diligence in the future.