Below we discuss risks that could have a significant impact on the Kuraray Group's performance, operating results and financial position. Forward-looking statements in the following text represent the Kuraray Group's best judgment as of December 31, 2018.
- 1) Risks associated with changes in the business environment
The Kuraray Group has a diversified business portfolio and gears its products towards global markets with a variety of uses and applications. Many of our products are specialty materials that are less susceptible to the fluctuations in commodity markets compared with those in other industries. In recent years more and more of our products are suited for growing business areas like electronics, automotive and environmental applications, on which our overall business performance is increasingly dependent. In these areas, the market environment can undergo drastic changes as a result of changes in industry standards for end products, shorter product cycles and worldwide competition in product development. Therefore, we may also face extreme changes in the market environment and competitive conditions for our products.
Meanwhile, we manufacture products such as chemical products, synthetic resins, synthetic fibers and textiles out of raw materials such as ethylene and other petrochemicals that are susceptible to fluctuations in the markets of crude oil and natural gas. Market fluctuations exceeding expectations can affect the Kuraray Group’s business results.
The Kuraray Group is exposed to the risk that it will be forced to downsize or close certain areas of its main businesses as a consequence of the changes in its business environment as described above.
- 2) Risks associated with accidents and disasters
The Kuraray Group has manufacturing facilities in Japan, Europe, North America, Asia and Australia. Many of Kuraray’s production facilities are large-scale chemical plants. Safety is the cornerstone of everything that we do, and Kuraray works continuously to prevent accidents and disasters such as fires and chemical leaks. We train first responders to help minimize injuries during crises, conduct risk management assessments and purchase casualty insurance on each plant. In the event of a major incident like the release of pollutants or a natural disaster, there can be the risk of personal injury, property damage, loss to the assets of the Kuraray Group, or the halt of manufacturing operations for long periods.
In the event of accidents or disasters at supplier locations, Kuraray’s product supply may be affected by a shortage of raw materials due to damage to their facilities.
- 3) Risks associated with litigation and violation of laws and regulations
The Kuraray Group operates numerous businesses based on its proprietary technologies, posing the risks for a serious infringement of its intellectual properties or litigation involving its rights in the future.
Kuraray supplies products that play a significant role in ensuring the quality of the endproduct in sectors such as automotive, electronics, medical applications and food packaging. We have introduced a product quality management system, mainly at each production base of the Kuraray Group. Product quality is imperative.
However, in the event of a large-scale product recall caused by defective quality, there are risks of major financial losses including liability losses that cannot be fully covered by existing product liability insurance.
Also, despite our construction of a compliance system and our efforts to comply with laws and regulations at each of our operating facilities, there are risks that our business activities could be interrupted in the event of a major breach of legal compliance, changes in current laws and regulations or the addition of new laws and regulations.
- 4) Risks associated with changes in exchange rates
The Kuraray Group is expanding its manufacturing and sales operations in Japan and various overseas regions, including Europe, North America, Asia and Australia. Export prices of the Kuraray Group’s domestically manufactured products are affected by changes in exchange rates.
Sales of products manufactured at our overseas bases, procurement and sales prices in different currency blocks, and the value of foreign-currency-denominated assets and liabilities are affected by changes in exchange rates.
The Kuraray Group can be affected by exchange rate fluctuations if they exceed the scope of our assumptions.
- 5) Other risks
With the global development of our businesses, there are unplanned risks that we must be aware of such as war, riots, terrorism or any epidemic which could disrupt our business activities.