Investor Relations
Information to help investors gain a deeper insight into who we are
- HOME >
- Investor Relations >
- Risk Information
Risk Information
Key risks to the Nissan Chemical Group
The following matters could have a major impact on investors' decision-making regarding subjects, such as our business performance and financial position. Forward-looking statements contained herein reflect our judgment as of March 31, 2023. While important risks are described below, this is not an exhaustive listing of all possible risks.
1) Failure of the business portfolio strategy
(i) Chemicals Segment
While supplying Basic Chemicals, such as industrial chemicals, to a wide range of industries, we also strive to produce and supply products suited to leading-edge fields, such as high-purity chemicals, from which impurities have been removed to the maximum extent and high-performance chemicals derived from cyanuric acid, for which there is growing demand for use in electronic-materials applications.
Since these products are mainly derived from ammonia whose starting material is natural gas, they are susceptible to raw fuel prices. In addition, there is a possibility that a breakdown in the global supply-demand balance due to changes in Chinese market conditions and so on could impact our sales as well.
There also is a risk of temporary suspension in operation or losses due to issues at plants attributed to the aging of facilities in recent years, despite our efforts to advance technologies for plant maintenance through the adoption of digital solutions, such as the Internet of Things (IoT) and artificial intelligence (AI) technologies.
(ii) Performance Materials Segment
Through the businesses of Display Materials, Semiconductor Materials, and Inorganic Materials, we will contribute to the realization of a smart society.
Consisting mainly of coating materials used to align liquid-crystal molecules uniformly, Display Materials currently are supplied mainly for use in smartphones and tablets. We plan to introduce these materials for use in televisions and other large displays in the future. At the same time, organic electroluminescence displays (OLED), which have advantages over liquid crystal displays in thinness, lightness of weight, and quick responses, and are well suited for use in flexible displays and other innovative designs, are being adopted increasingly for use in devices, such as smartphones and high-resolution, large-screen televisions. While we are making progress on the development of materials related to OLED and materials for next-generation light-emitting displays as the successors to OLED, there is a risk that these materials might not be adopted by customers due to factors, such as the state of development and dramatic changes in competition.
In the area of Semiconductor Materials, from a start in coating material to prevent problems, such as diffused reflection and interference of light and coating defects in precise machining of photoresists through photo-irradiation, we have developed materials suited to even finer machining of semiconductor circuit widths and are focusing today on extreme ultraviolet (EUV) lithography materials and 3D packaging materials with an eye toward the limits of growing demand for and precision in EUV exposure technologies. However, there is a risk that these materials might not be adopted by customers or we might lose market share due to such factors as the state of development and dramatic changes in competition.
The business of Inorganic Materials began with the introduction of silica aqueous dispersion, and today we supply materials suitable for use in organic solvent dispersion and solvent-free products. These are used in applications, such as optical-film coating materials and electronic storage media polishes. While recently we have been working toward their deployment in applications, such as solvents to improve the efficiency of shale oil and gas extraction, there is a possibility that sales of our solvents could be affected by changing demand for shale oil in response to fluctuating oil prices.
(iii) Agricultural Chemicals Segment
We contribute to a stable food supply through consistent business activities from the research for new agricultural chemicals to their development, manufacture, and sales, and expansion of a broad product lineup through the acquisition of ingredients from other companies and joint development of products. We launched an insecticide, developed in-house, in 2018. We acquired a fungicide from other companies in 2019 and 2020 to enhance our product portfolio. Furthermore, we have discovered compounds that are not only effective for use on agricultural crop pests, but also on fleas and ticks that are parasitic in dogs and cats through our development of agricultural pesticides and expanded into the veterinary pharmaceutical field. At present, we continue to develop insecticides, paddy rice herbicides, and next-generation products. At the same time, while we are implementing various measures related to production and supply in response to our growing lineup of active ingredients and increased demand, there is a possibility to lose sales opportunities temporarily if it were to take too long to complete these efforts.
(iv) Healthcare Segment
An anti-cholesterol agent using our compound as the active ingredient has been approved and is sold in 30 countries around the world at present. After the domestic compound patent has expired in August 2013, the impact of drug price revisions and the decline in market shares due to generic drugs have resulted in a continuing difficult situation in Japan, and the creation of new drugs is an urgent issue for us. We will work on the use of artificial intelligence (AI) in small molecule drugs and focus on oligonucleotide drug discovery. Furthermore, we will start and expand the sales of medical materials, such as biointerface materials and cosmetic materials from the comprehensive viewpoint of health care. We will also be engaged in business not only in Japan but also in overseas markets and launch a peptide contract business in a “solution proposal” contract business and a joint development business that provide total support for the development of active pharmaceutical ingredients in response to customer needs. However, there is a risk that our business performance and financial position could be impacted over the medium to long term depending on the results of drugs developed in-house which require R&D expenses and time.
2) New product development and external technological innovations
Based on the five core technologies we have built up, “Fine Organic Synthesis”, “Functional Polymer Design”, “Ultrafine Particle Control”, “Biological Evaluation”, and “Optical Control”, and new technologies we will grow, “Microbial Control” and “Information Science”, we are proactively developing new products in the business domains of “Information & Communication”, “Life Sciences”, “Environment &Energy”, and “Materials & Services”, aiming to contribute to solving social issues. New product development requires advanced technologies and considerable funding and human resources, and it takes a long time. While in recent years we have been devoting management resources toward R&D through means that include investment of 8% to 9% of annual net sales in R&D costs and employing about 40% of our professional staff in R&D departments, as well as identifying research topics based on the latest technological information and managing them based on periodic evaluation. There is a risk that the success of development, our business performance, and our financial position could be impacted by sudden changes in the conditions of our target markets and technological trends.
3) Procurement of raw materials and supply of products
We have established a policy for the procurement of raw materials and other materials (procurement policy). We ask not only our potential business partners, before outsourcing an operation such as the manufacture of important raw materials, intermediates, and products, but also our new and existing suppliers to answer a questionnaire on sustainability and give priority to business partners that fulfill our standards. If needed, we carry out awareness building and improvement activities designed for our business partners.
Furthermore, we conduct on-site auditing of suppliers and business partners in Japan and worldwide to confirm details of their sustainable activities—in particular, their initiatives regarding the environment, health, and safety (EHS)—and strive to secure stable suppliers with consideration of cost, quality, and other factors through means that include the promotion of sustainable procurement.
However, some raw materials, such as compounds synthesized using advanced technologies, have limited suppliers and depend on imports from China and other countries, therefore there is a risk that our business performance and financial position could be impacted if our structures for stable manufacture and sale of products were impeded due to interruptions in the supply of the raw materials, caused by such factors as various difficulties involving the suppliers or sudden enhancement of laws and regulations in the countries where the suppliers do business.
4) Legal restrictions and violations of laws and regulations
In light of the nature of our business, we are subject to Japanese and foreign laws, regulations, and other restrictions concerning the handling of chemical substances. There is a tendency toward the strengthening of various restrictions in recent years as a result of rising global awareness of environmental issues and the effects of chemicals on living creatures, and there is a risk that developments for the amendment or enhancement of existing restrictions could impact business performance and our financial position through means such as restricting business activities, requiring additional compliance costs, or prohibiting sale of subject products in certain countries.
In addition, we formulate compliance rules and basic compliance policies based on our understanding that compliance involves conformity with laws and regulations, as well as social norms in a broader sense. Furthermore, in addition to establishing the Consultation Hotline, an internal whistleblower system, and maintaining structures to prevent and swiftly resolve any compliance violations, we also strive to raise the levels of knowledge and awareness of compliance through such means as various training programs for executives, employees, and others and ensuring a thorough understanding of the compliance manual. However, there remains a risk of legal penalties, litigation, or social sanctions in the event of violations of laws or regulations or acts counter to social norms.
5) Occupational accidents, accidents, and natural disasters
We are putting effort into Responsible Care (RC) activities designed to secure environment, health, and safety (EHS) performance on voluntary basis throughout the entire process, from the development of chemical substances to manufacture, logistics, use, final consumption, disposal, and recycling, and provide communication with society through the announcement of their results.
We perform a risk assessment (prior assessment) at each stage in handling chemical products, such as the R&D, manufacture, sales, and revision, and based on the results, take appropriate measures; i.e., legal and regulatory compliance, improvement of facilities and operation procedures to reduce worker exposure at manufacturing sites, clarification and documentation of the procedures, and the training, etc. Through such activities which are parts of our RC management system, we prevent occupational accidents, promote the good health of staff, and build a comfortable workplace environment in our effort to improve the level of health and safety in each business location. We also carry out prior assessment for manufacture, process risk predictions, facility risk predictions, and needed capital investments to ensure safety, achieve stable operations and improve our process safety capability. In addition, we implement various drills and training sessions to enable us to respond to any emergencies or accidents in a reliable manner.
To be ready for earthquakes and other natural disasters, we formulate disaster response measures and business continuity plans (BCPs) for plants and other major business sites, and we will continue to enhance these initiatives in the future as well.
However, there is a risk that an incident, such as damage to production facilities due to an unforeseeable natural disaster, such as a major earthquake or typhoon, an accident at a plant, or an accident during transport or external storage could impede plant operation or supply to customers, resulting in a negative impact on trust in the Nissan Chemical Group and on our business performance and financial position.
6) Product quality
Together with proactively earning, maintaining, and renewing quality management system certification at each plant, we strive to establish and maintain the quality assurance system through such means as establishing quality assurance divisions which are independent of the manufacturing divisions and setting up an internal network to promptly collect and evaluate customer feedback (complaint information) concerning our products and take necessary corrective actions. We have established and begun implementing the guidelines to prevent fraud and tampering regarding quality control, which have become a major social issue in recent years. We have also conducted audits and taken improvement measures if potential risks are found. However, there is a risk of not only an impact on our business performance and financial position but also loss of society's trust in the Nissan Chemical Group and negative effects on our businesses in the event that a claim for damages were filed by a customer or a user of products including our materials who suffered physical or property damage due to the inferior quality which was caused by unforeseen troubles in processes such as manufacturing, shipping, and storage.
7) Intellectual property
Considering research results and intellectual property to be the core of our businesses, we recognize the protection of intellectual property rights to be an important management topic and not only secure intellectual property rights but also enforce the rights through litigation. As a company operating in both domestic and international markets, we apply for and secure patents in countries around the world. In light of this fact, we are enhancing our structures for securing intellectual property rights and monitoring for infringements on a global basis.
However, there is a risk that an intellectual property dispute with another company or infringement by another company on our intellectual property rights could, depending on the results of settlement or legal disputes between the parties, lead to the payment of one-time penalties or conclusion of a licensing agreement, which then might make it impossible to achieve the sales or profit figures initially anticipated and our business performance and financial position could be impacted as a result.
8) Information security
We possess confidential information concerning R&D, production, and other matters as well as personal information on customers for use in sales promotion and other activities. In addition, in preparation for an anticipated future labor shortage, we are making progress on improving productivity and establishing maintenance structures through the adoption of IoT, AI, and other digital technologies in our plants.
We implement both tangible and intangible security measures through such means as the establishment of rules and guidelines on information management and ensuring that all employees thoroughly are aware of them. Nevertheless, there is a risk that our trust could be lost and our business performance and financial position could be impacted in the event that damage to the control or backbone systems or leakage of confidential or personal information in our possession occurred due to an external attack, unauthorized access, a computer virus, or other causes.
9) Securing human resources
To increase our ability to respond to increasingly diverse and sophisticated market needs, we aim to enhance our business foundations through efforts to strengthen our R&D abilities and improve product quality, as well as securing and training diverse, highly capable human resources and building comfortable working environments.
We believe the essence for human resource development is that each employee will continue to educate themselves voluntarily in their efforts to develop themselves, therefore we maintain a wide range of human-resources development programs for motivated employees. We also are advancing initiatives to enable diverse human resources to secure a sound work-life balance by realizing highly productive ways of working and to bring out their best in their workplaces where diverse opinions can be expressed freely. However, there is a risk that an inability to secure the needed human resources, due to worsening of employment market conditions or other factors, could affect our business performance and financial position.
10) Global business expansion
Since in each of our fields of business we are advancing business development with close ties to individual markets through establishing production and sales facilities around the world, mainly in Asia, Europe, and North America, there is a risk that such factors as changing political, economic, or social conditions in the countries in which we do business could impact our business performance and financial position. In addition, although we are striving to develop and maintain effective internal controls systems at each facility, there is a risk that malicious acts or gross negligence on the part of employees or others, or a failure of these systems to function fully, could lead to issues, such as violations of laws or regulations and our businesses could be negatively impacted due to not only payment of administrative fines and penalties or compensation for damage as a result of criminal or civil litigation but also a loss of society's trust in the Nissan Chemical Group as a consequence of the incidents.
11) Climate change
As climate change becomes more serious, investors and other stakeholders are becoming more interested in the impact of climate change on business activities. We support the Paris Agreement and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We have formulated and properly revised BCP (Business Continuity Plan) for our main products and purchased key raw materials from multiple suppliers on the assumption that our factories and suppliers were affected by extreme weather. Furthermore, we will introduce internal carbon pricing and promote investments which take into account the reduction of greenhouse gas (GHG) emissions and energy saving.
However, in case that regulations for GHG emission are introduced in each country where we operate, or natural disasters due to climate change increase in the area where we are located, there is a risk that our business performance and financial position could be impacted.
12) COVID-19
We have implemented various measures from a business-continuity perspective in response to COVID-19, while giving top priority to ensuring the physical safety of employees and their families. Each business site continues to operate in conformity with the policies on preventing the spread of the virus established by each country, jurisdiction, and company. In the event that an infected individual were to be identified on a Group business site, we would respond appropriately in cooperation with specialized institutions in each country and jurisdiction and take steps to minimize the impact on business, through such means as activating the business continuity plan (BCP) depending on the situation. While at this time the infection seems to be in control, there is a risk that our business performance and financial position could be impacted if supply chains were suddenly interrupted and it took a long time to recover due to the resurgence of COVID-19.