Business & Other Risks
The risks described below include those which may have a significant impact on investor decisions regarding the Group’s business results and financial standing.The forward-looking statements herein reflect the Group’s own judgements as of March 26, 2020.
1. Risk dependent on market circumstances surrounding the digital camera industry
Amid the worldwide growth of the smartphone market due to the enhanced performance of smartphone cameras and the ease of taking photos with them, the digital camera market continues to shrink and, accordingly, so does the interchangeable lens market, mainstay products of the Company. If digital cameras fail to convince the market of their superiority over smartphone cameras, the market contraction will continue and, as a result, may significantly affect the Group’s business results.
2. Risk from an inability to adjust production and sales to meet demand
Product supply in excess of actual demand could result in excessive stock and subsequent price drops, a decline in capital efficiency and a plunge in earnings. Meanwhile, actual product demand surpassing the Company’s supply would mean that it would not be able to meet all the orders and consequently miss sales opportunities. That may significantly affect the Group’s business results.
3. Risks from natural and other disasters
In the event of a major earthquake, fire, flood or other natural disaster, the Group’s development and manufacturing bases and suppliers may suffer devastating damage, suspend operations, and delay their production and shipments. If that leads to a sales decline or huge expenses for the restoration of business, it may significantly affect the Group’s business results.
4. Risks relating to climate change
Climate change is an issue that affects the world beyond national and regional borders. As its activities extend globally, the Group regards this problem as significant and takes actions in response. The inadequacy of these actions or delays in their implementation could bring about the realization of two different risks mentioned below .
(Risk related to social change)
Failure to adapt to an unexpected rapid shift to a carbon-free society would ruin the Group’s corporate brand and lower its corporate value.
(Risk related to supply)
Delays in a response to soaring raw material prices or other adverse impacts following weather abnormalities could lead to the suspension of factory operations or the severance of supply chains and a resulting disruption of the supply of products and services. This may significantly affect the Group’s business results.
5. Risk from dependence on the photographic lens business
The Group’s photographic lens business accounted for approximately 73% of net sales for the fiscal year ended December 31, 2019. Fluctuations in the market of interchangeable lenses for digital cameras have a huge impact on business results. In particular, the current shrinking of the digital camera market and the market of interchangeable lenses for digital cameras may significantly affect the Group’s business results.
6. Risk from dependence on specific customers
Sales to Sony Corporation and its group companies comprised approximately 26% of the Group’s consolidated net sales for the fiscal year ended December 31, 2019. As a result, changes in their strategies, policies and business relationships may significantly affect the Group’s business results .
7. Risk from dependence on specific suppliers
The Group procures raw materials, components and other items from numerous external suppliers. For the procurement of glass materials in particular, it relies on limited supply sources. If these raw materials, components and other items are not available in the quantity or at the price that the Group has planned for any reason, and if the Group is consequently unable to produce products in the planned quantity, it will fail to carry out its delivery responsibilities to customers, and this may significantly affect its business results.
8. Risk from occurrence of malfunctions due to incompatibility with cameras
The Company carries out full quality assurance tests on its interchangeable lenses for digital cameras before they are shipped, but some camera function may not work due to changes in specifications incorporated into new camera product models by their respective manufacturers. In this event, the Company offers free firmware updates for shipped products etc. Delays in the release of firmware updates or a long period of time required for a release could increase the number of customers who give up on purchasing the product and result in a loss of sales opportunities. This is a factor that may possibly cause fluctuations in the Group’s business results.
9. Risk concerning new businesses
It is the Group’s policy to foster and expand new businesses. In the event that the Group decides to scale back or withdraw from any new business due to intensifying price competition, rapid technological innovation, drastic changes in market needs or other concerns, the Group’s business results may be significantly affected.
10. Risk from the impact of technological innovation and others
In the business domains concerned with the Group, new optical technologies are rapidly advancing. Continuous efforts toward technological innovation and the application of these innovations to products are essential to its growth. Research and development efforts for this purpose require enormous efforts. If the Group’s development of cutting-edge technologies and their application to products fail to proceed as planned, its business results may be significantly affected.
11. Risk related to business partnerships and corporate acquisitions
The Group forms business partnerships and many other types of partnerships with other companies as measures to aid its growth. In addition, it considers corporate acquisitions aimed at business expansion. However, business expansion may not be achieved as expected for reason of an economic downturn or poor performance on the part of partners. The discontinuation of partnerships with any leading partner could cause trouble to the business plan, delay investment recovery and overshadow the potential for investment recovery. This may significantly affect the Group’s business results and financial standing.
12. Risk from product defects
The Group has developed advanced quality assurance systems. In the unlikely event of the occurrence of a defect in its products that may lead to large-scale product liability, the Group may incur significant expenses, lose public confidence, or face other negative impacts, and any of these may significantly affect its business results.
13. Risk concerning the acquisition and retention of competent personnel and the loss of key knowledge
The Group is supported by its employees who hold special skills in lens processing and other advanced techniques and capabilities. These significant personnel may leave the Group and their knowledge and expertise may flow out of the Group to outsiders. The Group understands that the recruitment and development of competent personnel and the retention of capable employees will impact its future business results. If it fails to hire or develop such personnel or if skilled workers leave the Group, development or production activities may be delayed and there may arise a risk of the loss of key knowledge and expertise. Consequently, the Group’s business results and financial standing may be significantly affected.
14. Risk from information leakage
The Group holds technical and other important information, corporate information of business partners and personal information concerning many customers and other stakeholders. It works to heighten the level of security surrounding such information, formulates and improves internal rules on information and provides education to its staff. Despite information security efforts, personal or technical information leakage may occur due to attacks by hackers or computer viruses, infrastructure failure, natural disasters and other concerns. Any situation like this may damage the corporate value of the Group. If corporate or personal information leaks out, the Group may not only have its credibility damaged but also face damage claims from business partners, employees or other stakeholders affected by the leakage, which may necessitate payments for damages to the companies and individual concerned and the taking of measures to prevent recurrence. This can entail huge costs and significantly affect the Group’s revenue and financial standing.
15. Risk related to international corporate activities
While the Group carries out many of its corporate activities in Japan, overseas corporate activities involve several risk factors, such as:
- Violent changes in foreign exchange rates;
- Political and diplomatic issues;
- Unexpected changes in policies, legal systems, regulations and other concerns; and
- Difficulties in recruiting and retaining personnel.
If the Group fails to cope with risk factors, its business results and financial standing will be significantly affected.
16. Risk from fluctuations in foreign exchange rates
The Group conducts transactions with overseas subsidiaries in foreign currencies, and some of its transactions with international and domestic business partners are in foreign currencies. Accordingly, fluctuations in exchange rates may significantly affect the competitiveness of the Group’s products in overseas markets, its export profit, business results and others.
17. Risk related to intellectual properties
The Group carries out investigations, negotiations and applications, and also takes other necessary steps to secure and protect its rights related to intellectual property rights and avoid any related issues. In the event of a dispute over intellectual properties occurring between the Group and a third party, the Group’s business results may be significantly affected.
18. Risk related to laws and regulations
The Group’s operations are subject to different laws and ordinances inside and outside the country and with administrative licenses, permissions and regulations, and the Group therefore strives to comply with them. In the event of a violation of laws or regulations or the filing of a suit due to unintended reasons, the Group’s business results may be significantly affected.
19. Risk related to impairment losses
In cases where the market value of the Group’s assets declines significantly or where the profitability of its business deteriorates, impairment losses will be recorded according to the accounting standards for impairment of assets, and this may significantly affect the Group’s business results.
20. Risk related to the spread of the COVID-19 coronavirus
If the global outbreak of the COVID-19 coronavirus causes problems in production systems, distribution systems or sales activities concerned with the Company’s business activities or extensive human damage, it may significantly affect the Group’s business results.
21. Other risks
In addition to the above, if there arise unanticipated political or economic factors, changes in tax systems or tax rates that have adverse effects, social turmoil due to acts of terrorism, wars, natural disasters, contagious diseases or other factors or any other equivalent event in any of the countries or regions where the Group conducts business, this may significantly affect the Group’s business results.