Business Risks
Below is a summary of risks that could affect the Ushio Group’s business performance, financial position, and cash flow adversely and materially. These are the risks evaluated and cited by the Group as of the date (June 29, 2021) the Group’s Annual Securities Report was submitted. This is only a partial listing, and does not cover all the risks the Group faces.
Business Segment Risks
1. Global Expansion Risks
We generate about 70% of consolidated net sales from production and marketing units in North America, Europe, and across Asia. Regulatory changes in Japan and elsewhere could significantly affect our results and financial position. Other key factors could include economic trends, natural disasters and inclement weather, terrorist attacks, regional conflicts, wars, epidemics, instability in securing human resources, and inadequate infrastructure.
Management’s policy is to address these overall business risks flexibly by responding groupwide to events as they occur.
The COVID-19 pandemic affected operations significantly in the year under review. We accordingly initiated a groupwide project to assess, discuss, and implement countermeasures.
2. Light Source Business Risks
The Light Source Business primarily employs a consumables revenue model for lamps in visual imaging and electronics. A rapid shift in some sectors in recent years from conventional lamps to solid state laser and light-emitting diodes has caused total lamp demand in existing markets to decline. Progress with such substitution varies across markets, and is accelerating in visual imaging. In electronics, it will likely take some time to resolve many technological issues. Technological innovations exceeding expectations could significantly affect our results and financial position. Profitability could decline owing to dramatic swings in demand for equipment incorporating consumables or if equipment operating conditions fluctuate far more than expected owing to global economic trends or operating environment transformations in business areas.
We will tackle these changes by constantly updating long-term demand forecasts in keeping with technological innovations and other business environment developments while responding accordingly. We will also focus on leveraging lamps offering competitive edges to create businesses in new markets and develop solid-state light source businesses.
3. Optical Equipment Business Risks
We strengthen products and services competitiveness by continuing to invest in R&D in such growth areas as EUV light sources for EUV lithography mask inspection, optical equipment for semiconductor packaging, printed circuit boards, and electronic components. Anticipated outcomes from R&D investments could be insufficient or delayed. We could also lag owing to technological advances among competitors. Such factors could significantly affect our results and financial position.
We aim to address such changes by developing technologies in response to technological advances and other market environment shifts and trends among business partners.
4. Imaging Equipment Business Risks
Our customers in this area include cinemas, public facilities, enterprises, amusement parks, and agencies. Market condition changes that accelerate deteriorations in customer business conditions and prevent them from fulfilling contractual terms could significant affect our results and financial position.
Over the medium and long terms, a restructuring of the cinema market could disrupt demand for projectors and other video equipment, threatening cinema chains and significantly affecting our results and financial position. Those changes could include enhanced and expanded audiovisual streaming services and evolving content consumption among consumers.
We aim to address such changes by developing technologies in response to technological advances and other market shifts and trends among business partners.
Common Business Segment Risks
1. Raw Materials Procurement Risks
Key raw materials in manufacturing lamps are such rare metals as tungsten and molybdenum and specialty gases. We procure these materials externally. Worldwide shortages or soaring prices could destabilize product supplies and dramatically increase manufacturing costs, significantly affecting our results and financial position. We accordingly obtain raw materials from diverse providers to maintain quality and stabilize supplies and prices.
2. Intellectual Property Rights Risks
Our industry experiences frequent technological innovation. It is thus vital to protect, maintain, and control patents, trademarks, and other intellectual property rights to retain market shares and competitiveness. Litigation could result from third parties violating our intellectual property rights or us infringing on third-party rights. Considerable erosion of rights protections could significantly affect our results and financial position.
3. Foreign Exchange Risks
We do business, invest, and undertake loans in yen and in foreign currencies. Foreign exchange fluctuations accordingly affect these activities.
Because such fluctuations could significantly affect our results and financial position, we reduce foreign exchange risk by entering into forward exchange contracts and other arrangements as needed.
4. Marketable Securities Risks
Price fluctuations in our securities holdings could significantly affect our results and financial position.
5. Information Security Risks
We ensure that our information systems and communications networks are safe and reliable. We do this by deploying measures to prevent and detect cyber attacks and by educating and training employees regarding targeted attacks. We are nonetheless not completely impervious to cyber terrorism, computer viruses, or facilities damage from natural disasters, which could significantly affect our results and financial position.
6. COVID-19 Infection Resurgence Risks
A resurgence of infections could cause customers to suspend operations or otherwise cause their business conditions to deteriorate. This could hamper accounts receivable collections, reduce investment appetites, and transform market environments, significantly affecting our results and financial position.
We have deployed infection prevention measures that prioritize the health and safety of employees and their families. We have adopted teleworking and other work practices to streamline operations. We revised our business continuity plan, which we originally formulated to address natural disasters, to focus on COVID-19. We are bolstering our business continuity structure by undertaking measures to safeguard employees and their families from infections.
