Business Risk Factors
Star Micronics Group recognizes a variety of risks and uncertainties that have the potential to affect its operating results and/or financial position. We recognized the following risks as of March 27,2020.
1. Spread of the Novel Coronavirus (COVID-19)
In the event of the further spread of the COVID-19 pandemic, there is a possibility of stagnation or delays in procurement and shipments due to restrictions on imports and exports as well as other factors. For a variety of reasons including the infection of employees, the possibility also exists that production base operations, sales activities, and head office functions will be suspended. In order to ensure the safety of its employees, the Star Micronics Group is implementing a host of hygiene and preventative measures. This includes limiting domestic and international business trips, promoting the wearing of masks and thorough hand disinfection, and adopting such workstyles as telecommuting and staggered work hours. In addition, the Company is endeavoring to properly identify and monitor the status of Group-wide functions including production, sales, inventory and logistics, in order to reduce the impact of the pandemic on its business. However, if the impact of the pandemic is prolonged, the Group’s business results could be affected by further loss of sales opportunities due to the stagnation of sales, production and distribution activities.
2. Changes in Economic Conditions
While each of the Star Micronics Group’s businesses is conducted globally, demand is influenced by trends in economic conditions in each of the countries and regions in which the Group’s products are sold. In particular, the mainstay Machine Tools Segment operates in an industry that is highly susceptible to the capital investment demand of corporations. The Group strives to cultivate customers, develop products and take other steps to make the structure of each business segment less susceptible to the impact of cyclical economic fluctuations. However, should trends in economic conditions deteriorate, the Group’s business results could be affected.
3. Foreign Exchange Fluctuations
The Star Micronics Group operates each its businesses in various regions around the world and conducts a high percentage of its production and sales activities overseas. As a result, the Group is exposed to foreign exchange rate-related risks. Although the Group employs a variety of tools including foreign exchange forward contracts in a bid to mitigate these risks, its business results could be impacted by large fluctuations in foreign exchange rates.
4. Competition Based on Price
The Star Micronics Group faces fierce price-based competition for many of the products it handles. Although the Group constantly works to develop high value-added products and technologies that exceed what other companies offer, while engaging in such activities as the cultivation of new markets and cost-cutting, its business results could be impacted in the event of intensified price-based competition.
5. Dependence on a Specific Industry
In its mainstay Machine Tools Segment, sales to the automobile industry account for a high percentage of the Star Micronics Group’s total sales. While every effort is being made to capture new demand expected from the shift to electric vehicles and to expand market share in areas outside the automotive industry including the medical and telecommunications sectors, the Group’s business results could be impacted by changes in production trends and demand in the automotive industry.
6. Production Sites
The Group has a high overseas production ratio. The Group’s overseas production sites, including outsourced manufacturing, are mainly based in China and Thailand. Although the Group has decentralized production bases in each of its businesses, the occurrence of unforeseen events including changes in social conditions or disasters at production bases could impact the Group’s business results.
7. Dependence on Specific Suppliers
The Star Micronics Group is dependent on specific suppliers for the procurement of certain components. While the Group has maintained positive relationships with the suppliers and put in place a system to facilitate stable supply, in the event that such issues as a decrease in the amount of supply, a hike in prices, and quality should arise, the Group’s business results could be affected.
8. Earthquakes and Other Natural Disasters
Most of the Star Micronics Group’s production sites are located overseas. However, the Company’s Head Office and domestic plants are located in Japan’s Shizuoka Prefecture, where an earthquake is predicted to strike in the Nankai Trough region. While the Group has formulated a business continuity plan and taken such measures as adopting a seismic isolation structure at its Head Office, in the event of a major earthquake in the Nankai Trough or other region, the impact could extend to not only Head Office functions and production activities, but also the Group’s business results as a whole.
Furthermore, in the event that a major natural disaster strikes the Group’s production and sales sites around the world or the surrounding regions, the Group’s business results could be significantly impacted.
In addition to trade friction, public regulations, patent disputes and environmental as well as quality issues, the Star Micronics Group recognizes that other areas of risk include securing and developing human resources as well as information securities. Although the Group strives to gather all relevant information as appropriate, in the event that any of these risks should arise, the Group’s business results could be affected.