Business Risks
Among the matters related to the business situation and financial condition, the following items may significantly affect investors' decisions. However, the following does not cover all risks related to the Company, and there may be other risks not mentioned here. Any of these risk factors may influence investors' decisions.
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Weather and Disasters
The Group's main products are ice makers and refrigerators. Due to the characteristics of these products, business performance is affected by weather conditions during the peak demand season. Unpredictable weather fluctuations, such as a cool summer, may lead to reduced demand, which could impact the Group's financial position, business performance, and cash flow.
In addition, natural disasters such as earthquakes, man-made disasters such as terrorism, or infectious disease outbreaks may affect the operations of the Group’s facilities, information systems, and business partners. Such disasters may have a significant impact on the Group’s production and sales activities, which could in turn affect its financial position, business performance, and cash flow.
Furthermore, the global spread of COVID-19 has affected the Group’s business and production activities. At present, the timing of its resolution and the long-term impact remain uncertain. If the situation becomes prolonged beyond expectations or if significant changes occur in lifestyles and markets in the post-COVID era, this could affect the Group's financial condition, business performance, and cash flow.
In February 2020, the Group established a COVID-19 Response Headquarters at its head office. While appropriately implementing measures to prevent employee infections and cluster outbreaks, the Group continues its business and production activities, striving to further improve productivity, reduce costs, and minimize the impact on management performance.
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Product Quality
The Group ships products manufactured and goods procured under a strict quality control system. While covered by product liability insurance, if a defect occurs that cannot be identified or corrected, or if there is a significant financial burden due to reputational damage or loss of corporate image, it may impact the Group's financial condition, business performance, and cash flow.
The Group continues to develop non-CFC products and energy-saving products using inverter technology, providing higher-quality and more environmentally friendly products, promoting differentiation from competitors, and expanding market share.
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Fluctuations in Raw Material Prices
The prices of raw materials and components for the Group’s products fluctuate with market conditions, which may affect production costs and product prices. If the Group cannot reduce manufacturing costs or pass cost increases onto product prices, it may impact the Group's financial condition, business performance, and cash flow.
The Group continues efforts such as reducing product costs to absorb raw material price fluctuations, improving operational efficiency through IT investments, and strengthening profitability by continuously enhancing management efficiency.
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Management of Personal and Transaction Information
The Group handles personal and transaction information of customers and others. While the Group has established an internal control system for information security, in the event of a data breach, there may be reputational damage or compensation liability, which could affect the Group's financial condition, business performance, and cash flow.
The Group promotes awareness of information security among all officers and employees through the distribution of the "Hoshizaki Compliance Handbook" and annual "Compliance Training Seminars." Additionally, training to prevent information leaks from targeted email attacks is conducted to reduce the risk of external information leaks.
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Changes in Competitive Environment
The Group operates in an increasingly competitive business environment, with intense competition in services and resources. Particularly overseas, competition with local manufacturers has intensified, and price competition may lead to decreased competitiveness and reduced profits. If price competition becomes more severe than cost reductions, resulting in significant price declines, it could affect the Group's financial condition, business performance, and cash flow.
The Group continues to strengthen product competitiveness by developing and selling environmentally friendly and energy-saving products, promoting differentiation from competitors, and enhancing sales capabilities and overseas market expansion.
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Intellectual Property Rights
The Group strives to create and protect intellectual property rights for its products. However, unauthorized use of these rights by third parties may result in the manufacture and sale of similar products, which cannot be fully prevented. Although the Group takes great care not to infringe on third-party intellectual property rights during product development, if a claim is filed for infringement, it could result in reputational damage or compensation liability, affecting the Group’s financial condition, business performance, and cash flow.
The Group’s Technology Planning Department is responsible for managing and maintaining intellectual property rights, operating mechanisms to protect company-owned intellectual property and prevent infringement.
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Legal Regulations
The Group’s business activities are subject to various laws and regulations in the countries and regions where it operates, including business investment approvals, export restrictions, and customs policies. These include trade, product export, antitrust, safety, patents, corporate taxes, VAT, foreign exchange, environmental management, and labor standards. Failure to comply with these laws may restrict business activities and affect the Group’s financial condition, business performance, and cash flow.
The Group also complies with laws regulating air pollution, water pollution, soil contamination, hazardous substances, waste disposal, and product recycling. Noncompliance may restrict business activities and adversely affect financial and operational results.
To strengthen legal compliance and risk management, the Group established a Legal Department in March 2020 and, in January 2021, created a division within the Product Planning Department to enhance legal compliance in product development and manage certification processes.
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Exchange Rate Fluctuations
Although the Group primarily manufactures overseas, the impact of exchange rate fluctuations on import and export transactions is limited. However, foreign currency-denominated assets and loans to overseas subsidiaries may be affected by exchange rate fluctuations, which could impact the Group’s financial condition, business performance, and cash flow.
The Group regularly monitors and manages expected exchange differences to reduce risks.
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Securities Value Fluctuations
The Group holds securities for purposes such as ensuring stable investment income and maintaining smooth business relationships with partners. However, fluctuations in stock market conditions or the bankruptcy of business partners could affect the Group’s financial condition, business performance, and cash flow.
In principle, the Group does not hold cross-shareholdings. When such holdings are made, they are for strategic, business alliance, or transactional relationship purposes, and the Board of Directors reviews the appropriateness of each holding annually.
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Corporate Acquisitions
The Group may pursue acquisitions as part of its business strategy to expand or strengthen existing operations or enter new business areas. Although thorough evaluations are conducted before implementation, if post-acquisition business plans do not progress as expected, losses may occur, affecting the Group’s financial condition, business performance, and cash flow.
When conducting acquisitions, the Group thoroughly verifies objectives, conducts due diligence by external experts, and confirms business plan feasibility while enhancing post-merger integration (PMI) to maximize synergies immediately after acquisition.
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Retirement Benefit Obligations
The Group’s retirement benefit obligations are calculated based on actuarial assumptions such as discount rates and expected returns on pension assets. However, if actual results differ from these assumptions, future financial conditions, business performance, and cash flow may be affected.
The Group has established a Pension Asset Management Committee to regularly monitor the management of pension assets and review investment products as necessary.
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Significant Litigation
While the Group recognizes the importance of compliance and strives to adhere to laws and regulations, if significant litigation arises in connection with its business activities and unfavorable judgments are made, this could affect the Group’s financial condition, business performance, and cash flow. To enhance legal response capabilities and strengthen risk management, the Group established a Legal Department in March 2020 to further reinforce its corporate governance system.
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Political and Economic Conditions
Political and economic conditions and changes in major markets where the Group operates may affect the business activities of key customers, such as those in the food service and distribution industries. As the Group expands globally across the Americas, Europe, and Asia, fluctuations in economic or political conditions in these regions could impact the Group’s financial condition, business performance, and cash flow.
The Group strengthens legal response capabilities and risk management by mapping and visualizing overall risks—including political and economic factors—across domestic and overseas subsidiaries, thereby preventing potential damage to corporate value.