Business and Other Risks
Of the business and accounting conditions and other matters described in the Annual Securities Report, the following are the major risks that management recognizes as likely to have a significant impact on the Group's financial standing, operating results, and cash flow status.
Note that items herein relating to future matters are based on the judgements by the Group as of the end of this fiscal year.
(1) Risk of fluctuations in private capital investment
With regard to the Group’s businesses, changes in the situations in which we receive orders may have a significant impact on sales and profits. The operating results etc. of the Group may be adversely affected by decreases in orders-received due to, in the Green Technology System Business, the postponement of redevelopment projects and decreases in capital investment in the manufacturing industry in Japan, and decreases in investment in overseas countries by Japanese companies, as well as due to, in the Paint Finishing System Business, the continuing production downscaling of Japanese automakers in Japan, decreases in capital investment resulting from sluggish sales of automobiles globally, and changes in the investment field based on the flow of “CASE” (Connected, Autonomous/Automated, Shared, Electric).
To deal with these situations, in connection with the Green Technology System Business, we are determined to expand target customers and further strengthen cost competitiveness through the promotion of cost reduction activities in Japan, and to reinforce our sales systems for local, European, and American companies and promote activities for receiving orders from Japanese companies in overseas countries in collaboration with Japanese sales units. Additionally, in the Paint Finishing System Business, we will commit ourselves to making our way into other markets in addition to the automobile and motorcycle markets and thereby expanding the Automation Business with automation technology at the core of these efforts.
(2) Risks related to large-scale natural disasters
In the areas where the Group is operating businesses, natural disasters, such as earthquakes, tsunamis, storms, and floods, or global pandemics, etc., may cause losses that have an impact on the Group's operating results and other aspects. The occurrence of a natural disaster on a large scale or in a wide area may cause not only direct damage to the Group’s property and/or our people’s lives but also impact customers’ business activities and, in consequence, the economic situation. And if this impact is prolonged, the Group’s operating results and other aspects will be adversely affected.
As a solution to these problems, we have basic policies for crisis management and a crisis management system established in preparation for the occurrence of unforeseen disasters, accidents, and incidents both in Japan and overseas. We set three levels of actions against crises according to the degree of their impact on human lives and the continuation of businesses, and make it a rule to take measures that correspond to the level of risks.
(3) Risks related to the spread of novel coronavirus infections
The spread of the novel coronavirus infections, which came to the surface in the beginning of 2020, is likely to adversely affect the Group's operating results and other aspects due to the impact of harm to employees, delays in the procurement of construction materials, the suspension of construction processes, etc.
As for measures against the novel coronavirus infections, we have decided to implement crisis measures at the highest level, and have established a crisis response headquarters headed by the president and consisting of the chief general managers, the chief executives, etc. The headquarters is responsible for group-wide measures such as encouraging telework, reducing risks during commuting by allowing staggered working hours and car commuting, preventing infections by reviewing company events and business activities and responding to infected employees.
(4) Risks related to the management and control of overseas businesses and overseas subsidiaries and affiliates
Unexpected revisions to laws and regulations, political unrest, and other factors may adversely affect the results and performance of our businesses operated in overseas areas. There is a possibility of losses due to foreign exchange fluctuations with respect to construction work contract amounts we receive and order prices we pay in foreign currencies. In addition, the financial statements of our overseas subsidiaries and affiliates are converted to prepare consolidated financial statements, and therefore, fluctuations in exchange rates may adversely affect the Group’s operating results and other aspects. Moreover, the occurrence of unpredictable problems or the failure to deal with these risks may cause downturns in business performance, such as the failure to achieve business plans at overseas subsidiaries and affiliates, resulting in an adverse impact on the Group’s operating results and other aspects.
In anticipation of these undesirable situations, we will endeavor to prevent country risks and risks related to overseas laws and regulations by collecting information about trends in the politics, economy, and laws and regulations of the overseas countries where we are operating businesses. When it comes to foreign exchange risks attributable to construction work contract amounts we receive and order prices we pay in foreign currencies, we minimize these risks through such risk hedges as forward exchange contracts. We will also enhance the governance systems of our overseas subsidiaries and affiliates.
(5) Risks related to the development of technologies
A delay in the development of a system capable of meeting the growing needs of customers, such as energy conservation, improvement and enhancement of environment measures, and automation, may result in a decline in technological competitiveness, lost opportunities to receive orders, or the lowering of customer confidence or our corporate reputation, all of which will adversely affect the Group’s operating results and other aspects.
In order to prevent these problems and solve societal issues, we will strive to develop and establish technologies for reducing environmental impacts and automation technologies. To this end, we will address themes that anticipate the needs of society by strengthening activities across the entire organization of the Group through the use of information and telecommunication technology.
(6) Risks related to human resources
The building construction and facilities construction businesses, both of which are the Group’s business fields, rely greatly on human resources. In Japan, the number and the quality of skilled and experienced engineers and technicians are decreased due to the accelerating aging of society and delays in the development of engineers, and this situation may make it impossible for us to establish a construction organization for achieving medium- and long-term plans or may impact our business performance. Additionally, in overseas countries, delays in the development of local employees and employee turnover may hinder us from securing personnel who will be able to play a core role in promoting localization, and adversely affect the long-term growth of our businesses in overseas countries.
In order to deal with these situations, we will strengthen cooperation with our partner companies and further promote modularization, mechanization, and factory production, which we have been working on for some time. Within the company, we will help our employees enhance their skills and develop human resources by improving basic technical capabilities through training and providing practical training in the field. Moreover, we will use information technology to increase productivity and thereby promote work style reforms, create attractive workplaces, and secure human resources.
Additionally, in overseas countries, we will strive to secure and develop core human resources by introducing a global personnel affairs system and push forward with localization.
(7) Risks related to compliance with laws and regulations
The Group's business fields are subject to a number of legal regulations, including the Construction Business Act, the Antimonopoly Act, and the Labor Standards Act. If any of the officers and employees of the Group commits an act in violation of laws and regulations, it may restrict the Group's business activities and adversely affect the Group's operating results and other aspects.
In order to maintain and raise awareness of compliance with laws and regulations, we will continue to conduct and follow up on compliance education programs and establish a corporate culture and structure that will prevent violations of rules.
(8) Risks of defects etc. due to serious accidents or quality problems
A serious accident or a serious defect, such as a quality problem, at the construction stage may result in a loss in social confidence in us and adversely affect our business performance. In connection with each construction work, we must assume liability for defect warranty for a given period after the completion thereof based on the construction work contract with the customer, and record a provision for warranties for completed construction for the costs to be incurred by this liability for defect warranty based on the past results. If the costs concerned exceed the outstanding amount of the provision, they may adversely affect the Group’s operating results and other aspects.
In order to avoid such situations, the Group is taking all possible measures to ensure safety and health management at construction sites by raising safety awareness and levels through the use of IT technologies such as digital signage and the instruction to subcontractors on preparation of detailed work procedures diagrams at work procedure review meetings, which we have been working on for some time. In addition, we are working to prevent quality problems by reviewing our construction management system and promoting the use of IT in construction management.
(9) Risks of fluctuations in material prices and labor unit prices
If the procurement prices of construction materials or labor unit prices surge and it is difficult to reflect them in the contract amount, such situation may adversely affect the Group’s operating results and other aspects.
As a solution to this, we are striving to control the risk of fluctuations in material prices and labor unit prices by ascertaining appropriate costs in each area at the time of receiving an order and hedging against the risk of price fluctuations in concluding a contract.
(10) Risks related to leakage of confidential information
If confidential information, including personal information and customer information, is leaked through cyberattacks, which are becoming more sophisticated, diversified, and clever year by year, illicit and intentional data removal by employees, etc., we may suffer a loss in confidence in us or be required to pay compensation for damage, which may adversely affect the Group’s operating results and other aspects.
To prevent these problems, we are endeavoring to prevent the leakage of confidential information externally by strengthening IT security, establishing internal regulations, and conducting thorough employee education, etc.