Business and Other Risks
The following examples of risks represent those matters related to business and finance as disclosed in our annual securities report which may impact OMRON Group operating results and financial condition (including stock price). We believe the following are matters that may have a material impact on investor decisions. Matters discussed here that are not historical fact reflect the judgment of OMRON Group management as of the date of submission of this annual securities report (June 19, 2019).
(1) Economic Conditions
The OMRON Group conducts business globally. Accordingly, macroeconomic downturns, trends in related markets, and fluctuations in domestic or international markets may have a negative impact on OMRON Group operating results or financial condition.
As we engage in active business development in overseas markets, we anticipate overseas businesses to represent an even greater share of our total business in the future. Accordingly, the OMRON Group is building a business foundation with greater resistance to foreign exchange rate fluctuations. These measures include improving the balance of foreign currency denominated transactions (expanding our production bases overseas, increasing local procurement, etc.), as well as engaging in foreign currency hedges over the short term through forward exchange contracts with financial institutions. However, dramatic long-term foreign exchange rate fluctuations for the Japanese yen versus major currencies such as the US dollar, the euro, the Chinese yuan, or the currencies of emerging economies could have a negative impact on OMRON Group operating results or financial condition.
(2) Laws and Regulations
As the OMRON Group conducts global business activities, we are subject to a variety of laws and regulations, including those related to labor, personal information protection, security export control, anti-bribery, antitrust, and more. Accordingly, we educate officers and employees in the OMRON Group Sustainable Conduct Policies and OMRON Group Rules for Ethical Conduct, providing necessary training. As new regulations and laws are passed, revised, or become subject to stricter interpretation, the OMRON Group may incur additional costs for compliance. These costs could have a negative impact on OMRON Group operating results or financial condition. If the OMRON Group has been discovered or judged to have violated laws and regulations by a governing agency, the Group may be subject to fines or other administrative penalties, criminal punishment, or litigation for damages, which could have a negative impact on the OMRON Group reputation in society.
(3) Natural Disasters
The OMRON Group has devised business continuity planning that addresses necessary safety measures, business continuity, and rapid recovery from large-scale earthquakes (major earthquake along the Nankai Trough, earthquake centered directly below Tokyo, etc.), infectious diseases (pandemic influenza, etc.), or other disasters. However, OMRON Group bases of operations and business partners are located throughout the world, making it difficult to avoid completely the risks associated with natural disasters, infectious diseases, etc. Further, the increase in scope of recent disasters stemming from climate change, etc. means that future disasters could be larger than predicted. Such disasters could curtail the scale of our business activities or otherwise have a negative impact on OMRON Group operating results or financial condition.
(4) Human Resources
To accelerate our global business expansion, the OMRON Group recruits and trains talented candidates for leadership positions. However, we may not be able to secure sufficient leadership to match the speed of our business growth. Further, a dramatic increase in pay rates for employees in emerging economies or other locations could have a negative impact on OMRON Group operating results or financial condition. To ensure safe and healthy labor conditions and workplace environments, the OMRON Group has determined rules and operations for labor safety and health management. However, any unforeseen industrial accidents that affect employees or facilities could have a negative impact on OMRON Group operating results or financial condition.
(5) Capital Funds
Any need for capital funds shall be procured by the OMRON Group in consideration of prevailing interest rates, the external macroeconomic environment, OMRON Group circumstances, etc. Accordingly, instability in the financial markets, a rise in the interest rate of the yen, or a credit rating downgrade could result in an increase in the cost of procuring capital. Such events could have a negative impact on OMRON Group operating results or financial status. The OMRON Group ensures capital liquidity to prepare for Global capital investment or opportunistic M&A activities. At the same time, the Group retains cash on hand and allocated capital funds in consideration of capital efficiencies. OMRON Group cash on hand is for use as working capital and business investment. Accordingly, cash on hand is not managed for investment purposes.
(6) Information Security
The OMRON Group possesses important business information, as well as personal information and confidential information obtained from business partners during the course of business. To prevent the unauthorized disclosure of such information to a third party through theft, loss, etc., the OMRON Group, including subcontractors, continues to strengthen management of information and response to any changes in laws and regulations. We have also established measures to educate employees and raise information literacy. However, information may leak or be involved in an incident due to unforeseen circumstances. Further, despite measures against cyber attacks on our information systems and ongoing IT governance improvements, we may be subject to attacks greater in degree than anticipated. Such attacks could result in the destruction, alteration, or leak of important information, or in system interruptions. The result of such events could have a negative impact on OMRON Group operating results or financial condition.
(7) Research and Development Activities, Intellectual Property
The OMRON Group is producing an increasing number of products whose added value rises by conforming to certain standards. Additional investment will be required if products are developed in advance of proposed standards, and such standards differ in final format. Such events could have a negative impact on OMRON Group operating results or financial condition.
The OMRON Group surveys the intellectual property rights of third parties in connection with our own research and development and design. However, as we conduct our business activities, we may be subject to claims that are in violation of the intellectual property rights of a third party, resulting in a dispute. In addition, we have established a merit system and take appropriate measures with respect to employees who have created inventions. However, disputes related to awards for inventions may occur between the OMRON Group and the inventor.
Third parties may make unauthorized use of OMRON Group brand names or may manufacture and sell products resembling OMRON Group products, damaging our organization. Further, we engage in the timely and appropriate response to the increasing incidents of other parties overseas registering domain names that resemble OMRON. However, it is a difficult task to find and deal with all unauthorized uses of domain names. Accordingly, the use by another party of an identical or similar domain name may result in commercial transactions that damage trust in the OMRON Group. A major dispute of this kind related to intellectual property could have a negative impact on OMRON Group operating results or financial condition.
The OMRON Group has production centers in China, Asia, and other regions around the world. We deliver products to our clients globally through sales centers in these countries and regions. To ensure the steady delivery of products to our customers, the OMRON Group has created and implements business continuity plans for production, logistics, IT, and other supply chain elements. However, disasters, diseases, labor troubles, terrorism, disputes, or international relations could interrupt our production activities in whole or in part. Such events could impede the delivery of products to our customers, having a negative impact on OMRON Group operating results or financial condition.
(9) Purchasing and Procurement
For product manufacturing activities, the OMRON Group selects trustworthy vendors from whom to obtain high quality raw materials and components in the necessary volumes and in a timely manner. However, OMRON Group businesses may be impacted negative due to a major interruption in the supply chain due to unexpected natural disasters or accidents, constrained supply of components due to business downturn at a vendor, or constrained supply due to increased demand in the market. Purchase prices are determined via contract between the OMRON Group and our vendors. However, costs for raw materials such as petrochemical products, steel, gold, silver, copper, and rare earth are tied to market prices. Accordingly, expanded demand in the market, the inflow of investment, or other factors could result in a negative impact on product costs due to price fluctuations. The result of such events could have a negative impact on OMRON Group operating results or financial condition.
The OMRON Group is experiencing increasing social demands related to ESG throughout our entire supply chain, including our response to conflict minerals, environmental footprint, and more. While the OMRON Group implements comprehensive CSR procurement from vendors, vendor inconsistencies could have a negative impact on procurement, affecting product sales. Such events could have a negative impact on OMRON Group operating results or financial condition.
(10) Quality Assurance
The OMRON Group has established ISO-certified quality assurance systems. We develop and manufacture products and services according to these standards, subject to a system of quality checks. The entire Group strives continuously to improve product and service quality, including the performance of quality audits. In these efforts, we aim to maximize customer satisfaction and provide better products and services through our pursuit of a quality first policy.
However, products may be used in a variety of unforeseen environments. We cannot guarantee that all products will be completely free of defects, nor can we guarantee there will be no product recalls. The country of Japan is requiring higher levels of consumer protection measures, while interest in quality continues to rise overseas. Accordingly, we may experience recalls due to large-scale product defects or loss of trust, brand value, and sales due to errors in initial risk response. The result of such events could have a negative impact on OMRON Group operating results or financial condition.
(11) Environmental Preservation
The OMRON Group is subject to a variety of environmental laws and regulations related to climate change, air pollution, water pollution, toxic substances, waste, product recycling, soil pollution, and ground water pollution. Compliance with future environmental laws and regulations, obligations to add initiatives for environmental improvement, or response to environmental regulations may become exceedingly difficult. Further, we may incur increasing environmental costs due to unforeseen circumstances, experience business interruptions of business due to violations of environmental regulations, or lose customers due to non-compliance with environmental regulations. The result of such events could have a negative impact on OMRON Group operating results or financial condition.