The Teijin Group has placed the "Total Risk Management (TRM) Committee," targeting both strategic and operational risks as a preventative measure against uncertainty that the Group may face, under the Board of Directors to conduct total risk management. The Board of Directors deliberates and decides the basic policy and annual plan related to TRM proposed by the TRM Committee. The Chief Social Responsibility Officer (CSRO) is in charge of establishing a cross-sectional risk management system regarding operational risk, and shall identify and deal with problems and respond to crises when they occur. Furthermore, the CEO is in charge of assessing strategic risk, and provides this assessment as materials valuable to the decision-making process to the Board of Directors and other bodies. The statutory auditors conduct audits to check whether the Board of Directors is appropriately conducting policy decisions, supervising, and monitoring with regard to TRM. Details on the recognition of significant risk that the Group manages under the TRM Committee are as follows.
Forward-looking statements are based on the Teijin Group's judgment as of the end of the preceding consolidated fiscal year.
- 1.Macroenvironment risk
- (1)Economic trends
The Teijin Group comprises the Materials Business Field, Healthcare Business Field, and IT Business Field, and each business domain has been expanding its business for customers in different regions. The Materials Business Field, including the Fibers & Products Converting Business, may be affected by economic trends and conditions in each country and region of operation as well as trends in the automotive and aircraft markets, which are major markets where the Group supplies products and services. On the other hand, the Healthcare Business Field and IT Business Field are expected to develop their business steadily even under a global recession, since they are relatively less likely to be affected by economic trends and conditions.
- (2)Foreign exchange rates
In the Materials Business Field, one of the business domains that the Teijin Group comprises, revenue is denominated in foreign currencies in the majority of cases. Furthermore, when preparing consolidated financial statements, the Group converts the foreign currencies in the financial statements of overseas consolidated subsidiaries into yen. Therefore, the Teijin Group's business performance and financial position may be affected by fluctuations in exchange rates. For reference, if the yen appreciates by JPY 1 against the USD, over the year, it will push down operating income by approximately JPY 0.4 billion.
- (3)Interest rates
The Teijin Group has decided the financing amount, period, and method after considering the details of demand for funds, its financial position and monetary environment. If interest rates rise, interest payments by the Group will increase. Thus, the Teijin Group's business performance and financial position may be affected by fluctuations in interest rates.
- (4)Raw materials and fuel prices
In materials businesses, such as carbon fiber, aramid fiber, polyester fiber, and polycarbonate (PC) resin, belonging to the Materials Business Field, the cost of raw materials and fuel account for a certain part of manufacturing cost. Therefore, the Teijin Group's business performance and financial position may be affected by fluctuations in raw materials and fuel prices due to changes in crude oil prices and the supply-demand balance.
- (1)Economic trends
- 2.Market and competitive environment fluctuation risk
- (1)Competitive environment
For general-use applications of materials including PC resins, the supply-demand structure in the market impacts selling prices. Thus, changes in the competitive environment may affect the Group's profitability.
- (2)Impact on demand in the supply chain
The Teijin Group develops materials, intermediate materials, and components supply businesses. Therefore, the expansion or reduction of end-user demand affects inventory adjustments at each stage of the supply chain, causing the Group's business performance to fluctuate more compared to the real economy.
- (1)Competitive environment
- 3.Resource investment risk
As declared in Medium-Term Management Plan 2020-2022: ALWAYS EVOLVING, the Teijin Group has expanded its capital investment and M&A budget to JPY 350 billion for the coming three-year period. However, there is a possibility of forgoing or a delay in the execution of capital expenditures or M&As due to the inability to find projects compatible with the Group's strategies.
Furthermore, the Teijin Group has determined to actively allocate management resources to R&D with the aim of realizing sustainable growth through technology-driven innovation, and plans to spend JPY 110 billion on R&D over a period of three years until fiscal 2022. However, the outcome of such R&D may diverge significantly from the objectives thereof, which may potentially have a negative effect on, among other parameters, the Group's operating results.
In particular, R&D in the pharmaceuticals business is characterized by significant investments of both funds and time. Pharmaceuticals discovery research has a high incidence of failure. In the initial stages, there is a high risk that researchers will fail to discover a promising drug. Even if a promising drug is discovered, clinical trials may prove it not to be as effective as anticipated, or to have unexpected adverse side effects, thereby forcing the abandonment of plans to apply for approval. There is also a risk that a new drug candidate may not receive regulatory approval as a result of the examination process that follows application, or that approval may be rescinded based on the outcome of research conducted subsequent to launch.
- 4.Policy change risk
Taking into account GHG emissions regulations to alleviate climate change effects and plastic product regulations to cope with the plastic garbage problem seen in many countries, primarily Europe, the Teijin Group has formulated its business plan. However, the manufacturing activities and profitability of the Group's various products, including carbon fibers and polyester fibers, may be affected if these regulations are tightened to a greater extent than expected.
Furthermore, there is concern over the emergence of global protectionism, including the recurrence of trade conflicts between the United States and China. If such a case occurs, the Group believes that the importance of the Teijin Group's strategy of manufacturing products in the suitable place will increase further.
On the other hand, in Japan, the Healthcare Business may be affected by the acceleration of domestic drug price revisions and other government policies to curtail medical costs.
- 5.Financial soundness risk
- (1)Impairment loss on non-current assets
The occurrence of an impairment loss on non-current assets owned by the Teijin Group, owing to factors such as a decline in profitability due to extreme worsening of the business environment, among other factors, may affect the Group's business performance and financial position.
- (2)Reversal of deferred tax assets
The Teijin Group has judged the recoverability of deferred tax assets based on the estimate and assumption of future taxable income. However, the occurrence of reversal of deferred tax assets in the event that some or all deferred tax assets are deemed unrecoverable due to changes in estimated future taxable income may affect the Group's business performance and financial position.
- (1)Impairment loss on non-current assets
- 1.Natural disaster risk
There are concerns that storms and flood damage as well as landslide damage due to typhoons, heavy rain, etc., stemming from increasingly severe climate change in recent years, which are considered to hold great risk for the manufacturing and service industries, may affect the Teijin Group's business operations. Furthermore, because large-scale earthquakes are likely to strike Japan to a certain degree in the future, including earthquakes occurring directly beneath the Tokyo Metropolitan Area and the Nankai Trough Earthquake, in addition to subsequent tsunamis, etc., the Teijin Group aims to minimize damage and promptly recover when a disaster occurs through revisions of BCPs as needed and the implementation of various disaster training programs.
On the other hand, the rapid spread of unexpected infectious diseases such as COVID-19 that started at the end of 2019 may impede the Teijin Group's manufacturing, sales, and R&D activities.
- 2.Manufacturing risk
The Teijin Group handles hazardous chemical substances and industrial waste, etc. which places a burden on the environment in its manufacturing activities. Any inappropriate handling of these materials may affect the global environment and impede the Group's business operations. In addition, the Teijin Group owns many chemical plants. Explosions, fires, or other major accidents at its plants may constitute an obstacle to the Group's business operations.
- 3.Product and quality risk
The Teijin Group has established independent divisions dedicated to secure quality and reliability at Teijin Limited and major subsidiaries such as Teijin Pharma Limited, thereby setting up a system to ensure quality assurance across all business activities based on strict quality management standards. However, there can be no assurance that all products and services will be free of unforeseen major quality issues. Product and service defects arising from such quality issues have the potential to negatively affect, among other parameters, the Group's operating results, financial position and public reputation.
- 4.Legal and ethical risk
Because the diversity of its employees, including nationality, culture, and a sense of belonging, has increased through M&As and other business activities, the Teijin Group utilizes the Corporate Ethics Handbook to reinforce corporate ethics and the Code of Conduct on a global scale and thoroughly promote compliance. However, the possibility that the occurrence of scandals such as violations of various laws/regulations, sexual harassment, and abuse of authority, etc. may result in the loss of social trust cannot be excluded.
Furthermore, as potential human rights risk is thought to exist within the supply chain, chiefly in the apparel industry, the Group has strengthened its efforts in areas such as human rights due diligence and CSR procurement. However, the occurrence of human rights issues within the supply chain may cause various impacts, such as impeding the Group's business operations or imposing loss of social trust.
- 5.Information security risk
The Teijin Group holds critical information pertaining to a variety of fields ranging from research and development to manufacturing and sales of various products. In addition, the Group handles the personal information and other privacy data of patients served by medical-related businesses. The Teijin Group implements various information security measures addressing both tangible physical infrastructure and intangible elements such as systems in the course of handling critical information, personal information and other sensitive data. These efforts notwithstanding, the leakage of the aforementioned information outside the Group due to disasters, cyberattacks, unauthorized access or other unforeseeable events could inflict unexpected losses on stakeholders and have an unfavorable impact on the Group's operating results.