Latest update: 2025/5/12
The following are the potential major risks that management recognizes as having a material impact on the financial position, results of operations and cash flows of the consolidated companies in the matters related to business conditions, accounting conditions, etc. described in the summary of financial results.
(1) Market fluctuations
Market fluctuations for the products OSAKI and its group companies provide are caused by various factors such as political and economic conditions of the regions in subject or government policies. In addition, product demand is affected by major customers’ financial performance or business and investment plans.
Smart meters, which are the Group's mainstay products, are replaced periodically under regulations. For example, the Measurement act in Japan sets at 10years for the verification period (or the usable period) of smart meters. Overseas, while usable periods and regulations differ by countries and regions, periodic replacements of smart meters are often required. Therefore, in the event of a temporary surge in demand, there is a possibility that demand may decline during a subsequent period.
To encounter the aforementioned risks, the Group is expanding its business not only in Japan but also in Oceania, Europe, and other emerging countries to disperse the impact of market fluctuations. In addition, the Group is working to stimulate demand by launching new products and adding additional functions, and to cultivate new customers. While we are working to disperse the impact of fluctuations in demand, significant fluctuations in demand could affect the Group's performance.
(2) Price competition
The smart meter industry is highly competitive both in and outside of Japan, and pricing is one of the most important factors in sustaining competitive positions. To avoid price competition, the Group selects markets where quality, safety and added value are appreciated, as well as committing to enhance product competitiveness. However, if prices decline significantly or large quantities of products are sold at lower than anticipated prices, the Group's performance will be negatively impacted.
(3) Supply chain risks
a. Procurement of parts and materials
The Group implements specification changes of smart meters to improve functionality and quality, as well as reducing costs. Therefore, procurement of parts and materials is carefully planned to maintain appropriate inventory levels while responding to specification changes of smart meters, order forecasts and procurement lead-time.
However, insufficient supply capacity amid tight demand for materials could adversely influence the Group’s manufacturing operations. This risk is currently evident due to the worldwide shortage of semiconductors. In addition, changes in customer requests may lead to inventory retention of disused parts and materials. Due to the aforementioned factors, the Group’s performance may be affected.
Furthermore, among the countries subject to the additional U.S. tariffs, those with higher tariff rates are expected to face negative economic impacts or disruptions. Should such situations arise in countries from which the Company procures components and materials, potential impacts on the Company’s supply chain may include delays in timely procurement.
b. Cost of parts and materials
The Group is committed to purchase parts and materials at appropriate prices. However, supply and demand conditions and inflation present a persistent risk of price increases for components like semiconductors and metals.
Although the Group strives to procure components at appropriate prices, there are risks of rising procurement costs for materials such as semiconductors and metals due to supply-demand imbalances, foreign exchange fluctuations, and inflationary pressures.
In addition, higher logistics costs due to rising crude oil prices may adversely affect profit margins if these costs are unable to be fully compensated by selling products at appropriate pricing.
(4) Overseas business
The Group’s oversea business operations are mainly in Oceania, Europe, and other emerging countries. Overseas sales accounted for approximately 40% of the consolidated net sales for the year ended March 31, 2024. The overseas business comprises a pillar of mid- to long-term growth. Because the Group is placing efforts on profit-oriented business expansion, markets and customers are under review from time to time in accordance with the latest risk information. In response to reducing risks, the Group operates production at multiple sites, including outsourcing, across multiple countries.
Overseas business, however, are constantly exposed to geopolitical risks such as political and economic conditions, conflict and terrorism, as well as uncertainty regarding laws, regulations and systems. Therefore, unexpected changes in the market or delays in projects, delays in production and shipments may adversely affect the Group’s operations and financial positions.
The Company has determined that the direct impact of the additional U.S. tariffs will be minimal, as its products, including those of its subsidiaries, are not exported to the U.S.
(5) Fluctuations in foreign exchange and interest rates
Fluctuations in foreign currency exchange rates affects the Group’s assets, liabilities, and income of overseas subsidiaries. The Group engages in hedging transactions to reduce the impact of foreign exchange fluctuations, but sudden fluctuations in foreign exchange rates may affect the Group's performance and financial position.
(6) Quality of products and services
The Group manufactures or outsources production based on a predetermined level of quality control. A strict quality control system has been established to ensure that anomalies or malfunctions in products are detected before shipments. However, in case anomalies or malfunctions occur in the future, the Group's performance would be affected in the event of a product recall, replacement, or compensation for damages.
(7) Research and development
OSAKI Group is strengthening R&D aimed at heightening product and service competitiveness. While the Group works diligently to collect necessary information in a timely manner for quick decisions, and respond flexibly to changes in the focus areas of technologies, there remains risks of slow response to the technology demand due to delay in development processes and shortages in researchers. The Group also recognizes the risks of the intellectual properties be invaded. Likewise, the Group also recognizes the risks of unintentionally invading a third party’s intellectual properties which may cause claims for compensation or legal actions against the Group. In such cases, the Group’s financial position is potentially affected.
(8) Sustainability
OSAKI Group recognizes that risks and opportunities related to sustainability is an important management issue. In response, the Group established the Sustainability Promotion Committee to promote a group-wide action to solve material risks and explore opportunities.
However, delays in responding to these risks could affect the Group's medium-to long-term performance.
(9) Risks associated with human resources
OSAKI Group recognizes that to carry out the mid-to-long term business strategies successfully, personnel resources and development is important. The Group recruit personnel freshly out of schools or seasoned personnel while providing various training programs. At the same time, the Group puts in efforts to provide personnel systems that are fair and rewarding and to improve the work environment for all employees.
However, competitive environment in recruitment and a decrease in working population in Japan, may lead to a lack of necessary personnel in carrying out the aforementioned business strategies, affecting the Group’s performance as a result.