Business & Other Risks

Statements made on this website with respect to risks related to Mabuchi Group's operation and others are those of main items which are thought to have serious influence on investors' decisions. Statements which are not necessarily related to risks but might affect investors' decisions are also made on this website to show our active stance toward the information disclosure. Having taken note of these risks, Mabuchi Group will try not to be getting involved in such risks and mitigate the damages once such risks may be realized. The matters concerning the future mentioned in the text are based on the judgment of our group as of the date of submission of the securities report.

Changes in Economic Conditions

The demand for Mabuchi products, which are incorporated into our customers' products, is influenced by the economic conditions present in the diverse markets in which the Mabuchi Group sells. Consequently, the Group's business results and financial position may be adversely affected by economic recessions and the corresponding contraction in demand in its key markets, including Japan, North America, Europe and Asia.
Our Group regularly reviews the market environment and order status at important meetings such as the Board of Directors and is constantly forecasting the latest market trends. In order to improve its market responsiveness, our Group strives to optimize capital investment, personnel, inventory, etc.

Fluctuations in Foreign Exchange Rates

Items denominated in local currencies on the financial statements of our overseas subsidiaries are converted into Japanese yen when the consolidated financial statements are prepared. Consequently, amounts which are to be recorded after being converted into Japanese yen are subject to the foreign exchange rates at the time of conversion. In particular, appreciation of the Japanese yen against the U.S. dollar will have a negative effect on the Mabuchi Group's consolidated business results, and conversely any depreciation of the Japanese yen will have a positive effect.
Appreciation of local currencies in regions where the Group carries out production will push up manufacturing and procurement costs which are denominated in those local currencies. Increased costs will lower Group's profit margins and price competitiveness, and will impact negatively on its business results.
Our Group measures foreign exchange risk and then takes into account the hedge effect and hedging costs to reduce foreign exchange risk to an acceptable level by using foreign exchange forward contracts in accordance with internal regulations.

Development of New Products and New Technologies

The development and sale of new products, by their very nature, involve both complexities and uncertainties, and include a broad array of risks.
In the event the Mabuchi Group cannot fully predict the changing needs of the market, or cannot develop appealing new products in a timely fashion, or in the event a technological innovation emerges which causes its products to become obsolete, then the Group's business results and financial position may be subject to significant adverse effects.
Our group is establishing an organizational structure for research and development activities with the aim of further enhancing our competitive advantage in today's rapidly changing business environment.
Furthermore, in order to achieve rapid decision-making, speedy response to changes in market needs, improved response capabilities in developing new models for specific applications, and globalization of customer support and CS activities, we are integrating with the sales department to promote the strengthening and development of business division activities.

Price Competition

Our customers are businesses in a diverse range of sectors that belong to the electrical and electronic equipment and machinery manufacturing industries, and price competition in these industries is extremely severe. In these kinds of environments, prices are a major contributing factor to competition in all sectors, and with the prominence of rival Chinese manufacturers, competition is becoming even more intense.
If our cost-reduction activities cannot keep up with falling prices over the long-term, then the Mabuchi Group's business results and financial position may be subject to significant adverse effects.
Recently, material prices and logistics costs have continued to rise worldwide. If inappropriate pricing or various cost-cutting activities are unable to keep up with changes in market conditions, this could have a significant impact on our Group's business performance and financial position.
Our Group is bringing together its knowledge and technology, including standardization and labor-saving, to manage costs from the product design and development stage, improve production technologies, systematically reduce costs by globalizing parts procurement, set fair prices, continuously introduce high added-value products, and maintain and improve average unit prices and profitability.

Potential Risks in International Economic Transactions and in Expanding Business Overseas

The majority of the Mabuchi Group's business activities are conducted in the various countries in Europe, North America and Asia.
Within these overseas business activities there are certain inherent risks, including changes in political and economic environments, undeveloped infrastructures, changes in laws, tax affairs or various other systems, or social unrest.
For example, much of the Group's production activity is conducted in China and Vietnam. The occurrence of an unexpected event (such as changes in the political or legal environment, changes in economic conditions, problems related to the employment environment, or other changes to the social environment) may lead to significant problems for our production and/or sales activities, and these may lead to the Group's business results and financial position being subject to significant adverse effects.
In addition, geopolitical risks have recently increased following Russia's invasion of Ukraine, causing rising raw material prices, uncertainty about energy supplies, and disruptions to international supply chains. We will continue to closely monitor the changing situation.
In order to collect and respond in a timely manner to information on the economic, political and social circumstances of the countries in which we operate, as well as on environmental regulations, product safety and quality regulations, and import/export regulations of each country related to our business, our Group is considering and implementing appropriate responses in a timely manner, including the establishment of a five-regional global system.

Product Quality

There is no guarantee that all Mabuchi Group products will have no major quality issues. If a quality issue occurs, the amount of compensation may be influenced by the effect on the quality of the final product in which the Mabuchi product is incorporated. The unlikely event of a product defect that leads to a large-scale product complaint, recall or product liability compensation may trigger an accrual of large amount of costs or downturn in sales due to a loss of credibility, and may have significant adverse effects on the Group's business results and financial position.
In order to produce stable quality at all production bases, our Group has obtained international standards such as ISO9001 and IATF16949 certification for each business base and strives to continually improve and enhance its management systems. It also adheres to the quality system established by the Headquarters and strives to supply high-quality products.
In addition, when a defect occurs, we investigate the root cause and then implement and thoroughly implement measures to prevent recurrence and the occurrence of the problem.

Protection of Intellectual Property

We recognize that the acquisition of intellectual property can greatly influence the growth of the Mabuchi Group. However, in certain regions, for certain inherent reasons, the Group's intellectual property rights may not be completely protected. In such instances, the Group's intellectual property may be used without authority by third parties, and through the manufacture of similar products, we may suffer damages. Or we may lose our competitive advantage through the outflow of other technology or expertise, and then having it exploited by other companies. Or even still, there is a possibility that it could be claimed that the Group has impinged on the intellectual property of another company.
The failure of protection or the violation of intellectual property rights, or the outflow of other intellectual property may lead to the Group's business results and financial position being subject to significant adverse effects.
Our Group strives to secure a competitive advantage by comprehensively and proactively acquiring and protecting intellectual property rights in order to expand sales and new applications for its products.
In addition to securing intellectual property rights, we also implement a wide range of awareness-raising measures, such as providing education to our Group employees, to protect against risks such as the leakage and infringement of these rights.

Securing and Developing Human Resources

The Mabuchi Group operates in a highly competitive corporate arena. This situation renders essential the recruitment and development of employees who are highly skilled in related areas: engineers with specialist scientific and technological expertise, and managers with top business strategy acumen and executive capacities. The Group is fully cognizant of the need for the continuous enhancement and improvement of its human resources for the next generation and beyond. Meanwhile, the Group should put in a great deal to recruit and develop such a workforce.
The failure to recruit and cultivate such a workforce on an ongoing basis through the requisite expenditure and long-term human resource development vision would invite adverse impact on the Group's future performance and financial position.
In addition to planned recruitment of new graduates, our group also hires year-round based on needs. We also strive to increase employee motivation and to retain and develop our employees by expanding our educational system to support skills development, placing employees according to their aptitude so that they can fully utilize the abilities of our diverse employees, establishing a system to quickly develop specialists in each department, and establishing a system to support work-life balance.

Procurement of Raw Materials

Depending on the type of raw material that the Mabuchi Group procures from external sources, we may be dependent on a limited number of suppliers. There is a possibility that supply of the raw material is suspended due to an accident befalling the supplier or for some other reason, or that a shortage of supply transpires due to a sudden upsurge in demand. If such conditions were to continue long-term and alternative materials were not easily available, then there is a possibility that the Group's production activities would be affected dramatically, and in turn this would undermine the assurance of delivery and quality of products to its customers. It is also possible, that the prices of such materials would escalate, which would trigger a rise in manufacturing costs. Furthermore, rising commodity prices may lead to increased manufacturing costs.
If such an event were to occur, then the Group's business results and financial position may be subject to significant adverse effects.
In order to avoid such risks, our Group procures various raw materials, parts, etc. from multiple businesses to maintain a stable supply and also takes into consideration CSR procurement. Additionally, for some materials, we are taking measures to stabilize prices through appropriate futures reservations, etc., and to mitigate the impact on manufacturing costs.

Natural Disasters and Accidents, Infectious disease outbreaks

Our Group has established an international division of labor system and conducts business activities in countries around the world. It owns factories, offices, and other facilities and equipment at its head office and each base. However, if unforeseen circumstances occur, such as the interruption of business activities due to disasters, accidents, or the spread of infectious diseases, this could have a significant impact on our Group's business performance and financial position.
Our Group has formulated a Business Continuity Plan (BCP) and is taking measures to prevent the occurrence of risks such as disasters and accidents at the Headquearters and bases and to mitigate damage, including taking out insurance. In response to novel coronavirus and other infectious diseases, the Group is responding in accordance with the guidance of local governments and local authorities in the countries and regions in which it operates. With consideration for the health of its employees and their families, our Group is encouraging employees to work from home and staggered work hours, utilizing video conferencing, and taking measures to prevent the "three Cs" within the company, while also working daily to minimize the impact on its business.

Environmental Measures

The Group strives to prevent environmental damage by complying with various environmental laws and regulations, and by preventing harmful substances from leaking out and properly disposing of waste. However, if the situation becomes severe and further environmental measures are required, the business, performance, and financial position of the Group could be significantly affected.
Our Group regularly holds Environmental Management Committee meetings at its Headquarters and overseas production bases, which are made up of environmental management representatives and department heads, to share environmental information and efficiently carry out environmental conservation activities.
In addition, we hold an Environmental Management Officers' Conference, consisting of environmental management officers from the head office and overseas production bases, to promote the sharing of information on environmental issues and to promote measures for environmental management throughout the entire Group. Additionally, we recognize reducing environmental impact as an important issue in our mid-term sustainability goals and have set specific targets for this.

Global Climate Change

Our group is making continuous efforts in energy-saving measures and the introduction of renewable energy, including solar power generation, in response to climate change. We strive to curb CO2 emissions. However, damage caused by abnormal weather conditions (such as storms, floods, and droughts) due to global climate change, and the strengthening of regulations on greenhouse gas emissions (such as emission trading schemes), may have a significant impact on our group's performance and financial condition.
In addition to our medium-term goal of "reducing CO2 emissions by 30% compared to 2018 levels by 2030," our group is also promoting activities aimed at achieving carbon neutrality by 2050. To address the urgent issue of climate change for the international community, our group is working on reducing CO2 emissions by installing solar power systems, adopting systems that recover and reuse waste heat, introducing internal carbon pricing, and improving the energy efficiency of production facilities. Furthermore, we aim to view climate change not only as a risk but also as an opportunity, and we strive to solve social issues related to climate change through our business activities.
Regarding the disclosure of climate change information, we will continue to evaluate the impact of climate change and disclose information based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which we endorsed in March 2021.

Information Security Risks

In the course of its business activities, our Group may obtain confidential information about customers and other companies, as well as personal information about business partners and employees. We operate to prevent this information from being leaked to outside parties or used for unauthorized purposes. However, if such information is leaked due to human or technical negligence, or illegal or unauthorized access, it could result in large costs and a decline in sales due to a loss of credibility, which could have a significant impact on our Group's business performance and financial position.
Our group recognizes that one of our corporate social responsibilities is to properly manage the information assets we hold and to manage information security, and to prevent the leakage, falsification, loss, theft, etc. of information. We ensure that all employees, including executives, understand the necessity and responsibilities of information security, and we have established an information security policy to take every possible measure to ensure information security.
Specifically, through the activities of the Risk Management Committee, our Group is building a system and mechanisms that enable continuous efforts, evaluation, and improvement regarding information security. In addition, we properly classify and organize information assets and take information security measures according to their importance. We also handle information with the utmost care and manage it strictly. We also provide necessary education and training on an ongoing basis to ensure that our Group's directors, employees, and other workers understand the importance of information security and act accordingly.