Risk Factors

The JSP Group conducts annual risk assessments to identify, analyze, and evaluate risks, and aims to prevent risks from materializing as well as to reduce them.

Major risk factors that may affect the JSP Group’s financial position, operating results, cash flows, etc. are described below. These risk factors are based on assumptions made as of June 29, 2023, the date of submission of the Annual Securities Report, and do not cover all risks. Matters that may have a significant impact on the decisions of investors are described and take into account the results of the risk assessment.




1. Risks related to the (external) business environment




(1) Changes in the major market environment

In April 2021, the JSP Group launched its new medium-term business plan, "Change for Growth," for the three-year period from fiscal 2021 to 2023, and this fiscal year is the last year of the plan. The period covered by this plan is positioned as the second step toward achieving our long-term vision "VISION 2027," which defines our ideal state over a 10-year span.

Continuing from the previous medium-term business plan, this plan aims to expand the three business domains of "automotive parts," " thermal insulation materials for buildings and houses," and "flat panel display (FPD) cushioning materials" as a driving force for sustainable growth. During the previous medium-term business plan period, we invested in capacity expansion in these business areas, and in this medium-term business plan, we will take measures for investment recovery. However, the recovery may not proceed as planned because of the changes in the market environment due to various factors such as demand, economic conditions, technological trends, and revisions to laws and regulations.

In order to respond to changes in the market environment, the JSP Group will continue to expand into new business domains in addition to the existing businesses mentioned above. Moreover, in response to the growing awareness of environmental issues we will promote our transformation strategy with a focus on sustainability management and strive to provide products and services that are compatible with a recycling-based economy.

(2) Risks related to global business development

Since the JSP Group operates widely in North America, South America, Europe and Asia, its business activities in each region may be affected by political or economic factors, investment permits due to environmental regulations, transfer pricing taxation issues, changes in social conditions, trends in various regulations, labor disputes, difficulties in securing human resources, and exchange rate fluctuations, etc., which could have an impact on the business results and financial position of the JSP Group.

The JSP Group aims to reduce risks by having the Global Business Division manage the PDCA cycle of each site as a head office function. In addition, we will further enhance our internal control functions to strengthen the group governance.

(3) Intensifying price competition

Some of our product lines have long life cycles and many of these products are subject to severe price competition. Particularly in the Asian region severe price competition is expected to continue due to various factors such as the new entry of emergent local companies.

The JSP Group aims to secure an appropriate profit margin by focusing on cost reduction and maintaining and expanding its competitive advantage through a shift to high value-added products.

(4) Fluctuations in raw material and fuel prices

The raw materials and fuels we use are greatly affected by fluctuations in the prices of crude oil and naphtha, which can lead to significant price changes. Due to the recent surge in crude oil prices caused by rising geopolitical risks, raw material and fuel prices have remained higher than in recent years. In the case of the JSP Group, when the price of raw materials and fuel rises, it tends to cause a deterioration in our business performance due to delay in passing on the cost of raw materials and fuel to product prices.

The forecast of consolidated financial results for the fiscal year ending March 31, 2024 (announced on April 28, 2023) is expecting higher sales and operating profits, as product price revisions in response to rising raw material and fuel prices have largely been finished. On the other hand, negotiations with suppliers in connection with rising utility and logistics costs are still ongoing, and there is a possibility that the full reflection of the price revisions will be slower than expected.

In order to build a management foundation that is not affected by fluctuations in raw material and fuel prices, the JSP Group will consider formula pricing with customers in order to pass on prices to product prices in a timely manner and continues to make efforts to reduce costs.





2. Risks related to business operations

(1) Securing of human resources

Securing human resources in a timely manner is becoming more difficult every year due to the shortage of the working population caused by the declining birthrate, the aging population as well as the shortage of human resources in specific fields with high expertise amid the digital revolution. In addition, the shortage of human resources is becoming a major factor in increasing costs in terms of production and logistics which may affect the business performance of the JSP Group.

The JSP Group considers human resource development as one of the key management issues in the basic policy "Fortify the management base" of our long-term vision "VISION2027" and will enhance our human resource development system and further strengthen our organization as a global company. In addition, we will eliminate labor shortages by implementing measures such as shortening production processes and automating manufacturing lines.

(2) Risks related to the spread of infectious diseases (pandemics)

In the event of the spread of infectious diseases and epidemics, if employees of the JSP Group get infected and the infection spreads within the company through contact between employees, etc., production and shipments at factories may be disrupted and operations may be suspended for a certain period of time. In addition, even if our factories are able to operate there is a risk of having to suspend operations if problems arise in the supply chain such as when the supply of raw materials is suspended.

The forecast of consolidated financial results for the fiscal year ending March 31, 2024 (announced on April 28, 2023) is based on the assumption that the economy will continue to recover due to the situation where the spread of the COVID-19 infections lessens and restrictions on behavior are eased.

To ensure the health and safety of employees, the JSP Group will continue to take prevention measures against the COVID-19 infections and further improve its management infrastructure.

(3) Intellectual property rights

The JSP Group owns a large number of intellectual property rights, including international patent rights and it is important to protect these rights in order to secure future profits. In the event of infringement by other companies or disputes with other companies our business may be affected.

In order to avoid this risk the JSP Group is working to strengthen its systems globally led by the Intellectual Property Division.

(4) Quality assurance

As a manufacturer the JSP Group is exposed to the risk of unexpected quality defects and product liability lawsuits. Many of our products are used as components of end products such as food containers, automotive components, and building and house insulation materials, and quality defects could lead to serious damages for customers.

The JSP Group strengthens its quality assurance system by actively promoting the acquisition of quality management system certification at each plant.

(5) Impairment of fixed assets

Impairment losses on fixed assets held by the JSP Group may be incurred due to a decline in profitability caused by a significant deterioration in the business environment or a fall in market prices, which may affect the business performance and financial position of the JSP Group.

In the fiscal year ended 31 March 2023, an indication of impairment was identified as operating income arising from the asset group of EPS business in the beads segment have continuously been negative. After comparing the total undiscounted future cash flows from the asset group with its carrying amount, it was concluded that an impairment loss was not recognized as the total undiscounted future cash flows exceeded the carrying amount. Details are given in the Annual Securities Report of 65th fiscal year (Japanese only).
https://www.co-jsp.co.jp/ir/upload_file/tdnrelease/7942_2023062913140114_P01_.pdf

In the future, if actual results differ due to changes in the market environment or other factors, or if assumptions change, the company may recognize additional impairment losses in the next consolidated fiscal year.

The JSP Group conducts regular monitoring of important investments by requesting reports at major meetings attended by senior management to confirm that there are no major deviations from the original plan.

(6) Information security and information management

As information technology continues to evolve at a high level we cannot completely eliminate the possibility of serious failures of information system infrastructure or communication lines at unexpected levels or the destruction or theft of confidential information related to management.

In order to strengthen the safety and information security of the information systems the JSP Group has established related regulations and aims to ensure the confidentiality, integrity, and availability of the information and information systems in our possession and manages risks such as information leaks by continuously providing guidelines for improving the level of risk management. In addition, we conduct regular drills to respond to attacks on our information systems from outside and to prepare for emergencies.

(7) Compliance and internal control

As the JSP Group expands its business globally the changes in laws and regulations in various regions of the world may make it difficult to comply with such laws and regulations and there is a possibility that legal violations may occur in the future.

The JSP Group recognizes the importance of compliance and other appropriate internal controls and has established and is operating such systems. Specifically, we are working to strengthen our compliance system by establishing and thoroughly disseminating code of conduct that is common to our Group companies and by establishing a whistleblowing system that can be used by all our Group employees.





3. Risks related to the environment, safety, etc.

(1) Natural disasters and accidents

The JSP Group has many manufacturing plants globally and there is a possibility of accidents and industrial accidents at plants, accidents in external warehouses and in product transportation, and damage to production facilities due to natural disasters.

With regard to earthquake disasters which are expected to have the greatest impact among natural disasters, our Yokkaichi plant and other facilities could be affected by a massive Nankai Trough earthquake, which is considered to have a high probability of occurring and could suffer significant damage. The JSP Group prepares for the emergence of risks by having earthquake insurance.

The JSP Group ensures the safety of production aiming for no accidents, no disasters, and stable supply. In addition, to deal with natural disasters such as earthquakes, heavy rains, and floods, the JSP Group prepares disaster countermeasure manual and business continuity plan (BCP), operates an employee safety confirmation system, and conducts disaster drills.

(2) Environmental issues with plastics

The JSP Group’s basic policy is based on resource and energy conservation, protection of global energy resources and consideration for the global environment. We meet the demands of society and the market mainly through the functionality and convenience of foamed plastics. On the other hand, plastic has become a global social issue as it becomes marine waste due to improper disposal. With the focus on the Paris Agreement, SDGs and ESG issues, there is a movement toward plastic recycling, conversion to other materials and plastic-free products. Particularly in Europe, the circular economy movement is advancing and we expect the movement of pursuing resource recycling to accelerate in the future. Inadequate or delayed responses to these trends could have an impact on our business.

The JSP Group recognizes that the environmental issue of plastics is one of the important issues (materiality) to be addressed and is actively promoting efforts to contribute to society through environmentally friendly products, as well as initiatives such as material and thermal recycling of plastics, and use of recycled materials.

In December 2021, the JSP Group declared to support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and the risks and opportunities that climate change poses to the Group, as well as scenario analysis, strategies, indicators, and targets, are discussed by the sustainability promotion structure and approved by the Board of Directors. Through scenario analysis, we will reduce the risks posed by climate change and promote strategies that are in line with the Group's business operations so that risks can be turned into business opportunities.

Click here to view further information on response to climate change

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