Set out below are those matters relevant to the Tokuyama Group's business status and financial conditions that could potentially have a significant influence on investor decisions. Please note that the matters listed do not cover all risks relevant to the Tokuyama Group, and it is thought that there are risks other than those matters listed that could potentially influence investor decisions.
The matters listed are those regarded as relevant as at June 25, 2020.
(1) Procurement/Market Conditions of Raw Materials and Fuels, etc.
Tokuyama Group procures the raw materials and fuels essential to conduct production operations from various area in the world. Also, for some of its products, Tokuyama Group uses special raw materials and materials which have a limited number of suppliers. In the event that a soaring market or resource nationalism causes the tight supply of raw materials and fuels or delays in delivery hinders Tokuyama Group's production operations causing manufacturing costs to rise drastically, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
With regard to the procurement of raw materials and fuels, Tokuyama Group engages in long-term, stable, low-cost procurement by combining, for example, medium- to long-term contracts and purchases on spot markets.
(2) Semiconductor-related Business Market Environment
Tokuyama Group manufactures and sells semiconductor-related products through its Electronic Materials Business, Thermal Management Materials Business, and IC Chemicals Business. While these products are one of Tokuyama Group's main businesses, in the event that the economical trough in the information and electronics industry leads to a deterioration of the earnings from the aforementioned business, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group formulates business plans able to address fluctuating risks while working to strengthen cooperation with customers.
(3) Environmental Regulations, etc.
Tokuyama Group maintains a coal-fired power plant and operates a range of businesses that use natural resources and energy in large quantities. In the event that more stringent environment-related regulation is approved or a new social responsibility for environmental protection becomes required, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group also works to reduce its environmental impact by, for example, promoting Zero Emission initiatives and improving its unit energy consumption. In addition, the CO₂ Project Group has been established in order to accelerate the implementation of various measures related to CO₂ emission reduction and usage.
(4) Contractual Disputes/Litigation
In both its domestic and overseas businesses, there exists the possibility that Tokuyama Group becomes the subject of a legal dispute or litigation. In the event that a major lawsuit is filed, there is the possibility that such a situation greatly affects Tokuyama Group's business performance and financial condition.
The Legal & Credit Management Department and the Intellectual Property Department of Tokuyama Groups take lead in day-to-day precaution against patent or contract disputes and litigation.
(5) Effect of Disasters/Accidents
It is unable to completely prevent or may not effectively reduce the adverse effects on production facilities from disasters or accidents (including earthquakes and other natural disasters). Also, while Tokuyama Group manufactures products for which alternative production arrangements could not immediately be made, should events lead to a significant decrease in production volume or, in the worst case, Tokuyama Group be forced to discontinue production for a protracted period, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group performs day-to-day and periodic facility maintenance to minimize the adverse effects from any disruption to its production operations. Also, Tokuyama Group has developed a business continuity management approach and conducts BCP and safety confirmation drills in the event of a large-scale earthquake.
(6) Product Liability
In the event that, due to unexpected circumstances, a quality problem leads to a product recall or a product safety-related product liability (PL) issue arises, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group makes an honest effort to ensure the proper quality in accordance with product characteristics. In addition, Tokuyama Group has taken out product liability insurance just in case product defects occur.
(7) Market Economic Trends/Conditions
The supply of and demand for Tokuyama Group products are subject to the trends of their respective markets, which are primarily the chemical industries, the construction and construction material industries as well as the information and electronic industries. The products from Tokuyama Group are sold mainly in Japan, the United States, Asia, and Europe, and the economic conditions in such country could exert a great influence on the sales. A fall in demand in the market and industries or an economic slowdown in the sales area may greatly affect Tokuyama Group's business performance and financial condition. Also, in the event that business activities are adversely affected by unexpected changes made to social systems, laws and regulations, labor-management problems, undeveloped social infrastructure, or social disruptions caused by terrorism, war, or other causes, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group aims to increase productivity and maintain high quality by transitioning toward a robust business structure that is resilient against changes in the Company's operating environment and is capable of sustainable growth, while also pursuing cost reductions. The Group consistently monitors and will take appropriate measures in response to customer trends and business conditions in relevant countries and areas.
(8) Price Competitiveness
In each of the business that Tokuyama Group conducts, similar products may be available from competitors. In the event that low-cost imported products flood the market or a price war breaks out between rival companies due to unforeseen circumstances, and that the situation continues for a prolonged period of time deteriorating Tokuyama Group's profitability, there is the possibility that any such situation greatly affects Tokuyama Group's business performance and financial condition.
Tokuyama Group supplies products to customers maintaining a competitive advantage in terms of quality and price.
(9) Financing Arrangements
Since Tokuyama Group arranges financing through loans or issuance of unsecured bonds, there is a possibility that with some borrowing, cost of financing arrangements could increase due to changes in the market environment such as interest rate, which may have a significant impact on the performance and financial contents of the Tokuyama Group. In addition to changes in the market environment such as interest rates, depending on the credit ratings or other conditions, there is no guarantee that the financing is always available under same conditions in arranging financing through a new loan from a financial institution or the issuance of unsecured bonds.
Tokuyama group takes in preparation for changes in the market environment such as interest rates, in principle, measures to mitigate risks by hedging transactions such as fixed rate contracts or fixed interest rate swaps. In addition, Tokuyama Group will establish commitment lines as needed as a means of procuring liquidity funds to prepare for unforeseen circumstances.
(10) Fluctuation of Exchange Rate
Tokuyama Group exports products and imports raw materials, fuels, etc. in foreign currencies. There is a possibility that performance and financial content of the Tokuyama Group will be greatly affected by fluctuations in exchange rates. There is also the possibility that it will adversely affect the yen converted value of the financial statements of overseas consolidated subsidiaries when preparing consolidated financial statements.
Tokuyama Group has taken measures to reduce risks by currency exposure management by balancing assets and liabilities denominated in foreign currencies or hedging transactions such as forward exchange contracts.
(11) Human Resources Retention
There is the possibility that retaining personnel necessary for future production activities will become difficult due to expected decline in the labor force as the birthrate decreases and population ages within Japan. In this event, there is the possibility that Tokuyama Group's business performance and financial condition would be greatly affected. In addition, retaining personnel engaged in advanced materials R&D and DX promotion could become difficult. In this event, achieving the Tokuyama Group's growth strategies would become difficult and, in turn, there is the possibility that any such situation greatly affects the Group's business performance.
The Tokuyama Group will pursue laborsaving advances for plant operations using technologies such ICT and AI, and improvements in plant maintenance efficiency. In addition, the Group will work to retain necessary personnel by proactively engaging in mid-career hiring.
(12) Spread of Novel Coronavirus and Other Infections
In the event that novel coronavirus or other serious infection disease spreads at Tokuyama and/or its Group companies, partially or completely suspending operations would become necessary, and there is the possibility that any such situation greatly affects the Tokuyama Group business performance and financial conditions.
Tokuyama Group has established infectious disease crisis management standards aimed at maintaining the safety of executives, employees, customers and others during such crises and minimizing the impact of infectious diseases on the Company's business activities.
In response to the current spread of novel coronavirus, Tokuyama on February 3, 2020 established the Novel Coronavirus Crisis Response Headquarters headed by the president based on these disease crisis management standards.
Tokuyama Group is working to thoroughly counter the infection by:
①dispersing functions at marketing and back-office departments and upgrading systems that enable employees to work from home
②formulating specific measures to prevent infections at each manufacturing division and maintain business continuity at manufacturing facilities as part of the BCP.
In addition, Tokuyama Group will establish commitment lines as needed as a means of procuring funds to prepare for unforeseen circumstances.