Business Risks

Furukawa Electric Group’s financial results and financial situation are affected by the economic conditions in the various markets in which the Group sells its products and provides services.
The important risks that have the potential to affect the Group’s financial results and financial situation are listed, as shown below. Risk items are defined as those with a medium or higher likelihood of occurrence and magnitude of impact, and, based on how the risks are perceived, they have been broadly categorized into “Management perspective risks” and “Operational perspective risks.” When implementing responses to each risk, particularly for the management perspective risks, rather than being independent risks, they are recognized to be mutually related. The forward-looking statements contained in the descriptions below are based on the Group’s estimates and assumptions made as of March 31, 2024.

Business portfolio
Quality management
Employee health and safety
Creation of new businesses
Legal violations
Deteriorated profitability of construction projects
Climate change (carbon neutral)
Raw material and fuel price fluctuations
Environmental pollution and environmental regulations
Human capital and organizations
Information systems and information security
Impairment of non-current assets
Political and economic situation
Exchange rate, interest rate and share price fluctuations
Cash management
Human Rights and Labor Practices
Research & development and Intellectual property
Disclosure and brand
Impact of disasters or infectious disease

Management perspective risks

Business portfolio

Details of the risk	Stagnation or deterioration of profitability and growth due to an inability of the business structure to respond to changes in economic trends and market environment Suffering from less-than-expected performance or effect due to deterioration of market environment following the conclusion of an M&A transaction or external alliance
Main responses	Regularly check and verify the appropriateness of the business portfolio structure at the Management Meeting and the Board of Directors, and deliberate and implement revisions as necessary Established Business Portfolio Review Committee as an organization to promote the transformation of the business portfolio Determine whether to continue, downsize, or exit a business based on internal criteria such as return on invested capital (ROIC), value added to invested capital (Furukawa Value Added, FVA), average annual growth rate of net sales, etc. Clarify the objective of the acquisition or alliance and get a complete picture of assets and risks in advance Make an acquisition or form an alliance with appropriate invested capital by considering risk and return Recover invested capital at an earlier stage following the conclusion of an acquisition or alliance
Magnitude of impact	High
Likelihood of occurrence	High

Creation of new businesses

Details of the risk	Delayed or suspended creation of new businesses due to insufficient cooperation between the sales organization and the planning and development organizations of the new business
Main responses	Integrate the sales organization and the organization dedicated to creating new businesses, and accelerate co-creation with customers in the thematic area
Magnitude of impact	High
Likelihood of occurrence	High

Climate change (carbon neutral)

Details of the risk	As a transition risk, higher raw material procurement costs and manufacturing costs due to carbon taxes enacted based on government policies or GHG emissions targets in each country Exclusion from the supply chain or products, services and labor markets due to an insufficient response to climate change Suspension of factory operations due to an unforeseen risk of flooding or drought linked to climate change
Main responses	Establish the Environmental Vision 2050, set a challenge target of eliminating GHG emissions and raise or reset the Environmental Target 2030 Endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and conducted scenario analysis In addition to using hydroelectric power in the Nikko area, install solar power and switch to procuring renewable energy in Japan and overseas Grasp the risk of flooding and drought linked to climate change, and formulate responses
Magnitude of impact	High
Likelihood of occurrence	High

Human capital and organizations

Details of the risk	Lack of specialist personnel for creating new businesses and personnel capable of managing the business portfolio Lack of personnel numbers and sufficiently skilled personnel due to insufficient hiring, assimilation into the company and training Decline in employee engagement, which is the driver of sustainable corporate growth
Main responses	Based on the Furukawa Electric Group Vision for Our People, implement measures to strengthen human capital and organizational execution abilities, which will enable individuals and the organization to grow together by aligning their growth vectors and enhancing the attractiveness of our human resources and organization Strengthen various personnel management initiatives (recruitment, placement, and training) to achieve both the realization of management and business strategies and individual growth Monitor through surveys of human capital and organizational execution abilities including elements of employee engagement Continue and evolve leadership transformation activities Promote diversity and inclusion activities including work-style reform
Magnitude of impact	High
Likelihood of occurrence	High

Political and economic situation

Details of the risk	Supply chain disruptions caused by the impact of economic sanctions between groups of nations following the heightened repercussions of international conflicts, etc.; and supply shortages and suspensions due to dependence on supply from specific suppliers Review of international division of labor due to the impact of economic security policies Decline in earnings due to the overall business impact of reduced demand caused by the economic downturn and changes in customers’ policy and measures for capital expenditures and purchasing Decrease in competitive advantage of our products and services due to intensified competition
Main responses	Add redundancy within the supply chain (multiple suppliers and decentralization of manufacturing sites), optimization of inventory quantity, and stable procurement through long-term contracts Grasp the potential risks within the main international logistics routes Formulate a contingency response policy Strengthen the foundation of key businesses to enhance their resistance to economic downturns, and establish a system that can respond to rapid changes in demand by regularly monitoring and verifying customer trends and order intake status Promote efficient and rational manufacturing systems to maintain and strengthen price competitiveness, produce high value-added products, and proactively take on initiatives to optimize product portfolio
Magnitude of impact	High
Likelihood of occurrence	High

Human Rights and Labor Practices

Details of the risk	Exclusion from the supply chain or products, services and labor markets due to a potential or actual negative impact on human rights resulting from an inability to fulfill the responsibility as a company to respect human rights
Main responses	Promote initiatives in line with the three requirements of the UN Guiding Principles on Business and Human Rights for companies: “Establish a human rights policy,” “Conduct human rights due diligence,” and “Establish a remedy mechanism.” Promote business activities that respect human rights based on Furukawa Electric Group’s human rights policy Provide education on human rights risks and improvement measures based on the results of compliance surveys, etc., to employees of the Group Conduct the self-assessment questionnaire (SAQ) for major suppliers based on the Furukawa Electric Group CSR procurement guidelines Utilize the whistleblower system and Japan Center for Engagement and Remedy on Business and Human Rights (JaCER) as a remedy mechanism
Magnitude of impact	High
Likelihood of occurrence	Med.

Operational perspective risks

Impact of disasters or infectious disease

Details of the risk	Suspension of operations at manufacturing sites due to flooding or building damage caused by a large typhoon, etc. linked to climate change Disruption of a customer’s or supplier’s supply chain due to a large earthquake, tsunami, fire or infectious disease Inability to continue business operations due to the occurrence of a large cluster of infections among employees
Main responses	Promote business continuity management (BCM) in accordance with ISO22301 Develop and refine a business continuity plan and effectively utilize a safety confirmation system Establish data centers in facilities that are earthquake resistant and have a stable communications environment Add redundancy to the supply chain Survey manufacturing sites of customers and suppliers Permit employees to work from home and utilize remote meetings, etc.
Magnitude of impact	High
Likelihood of occurrence	Med.

Quality management

Details of the risk	Unexpected future claims for damage compensation due to a defect in products and services, etc. (in particular, additional costs could be large depending on the type of defect for products related to power cable, telecommunications cable and automotive products)
Main responses	Aim to realize the quality expected by customers, strive to prevent defects and continue the activities to improve problem solving ability Continue strengthening the quality management system based on the guidelines for quality control In preparation for damage compensation claims, enroll in product liability insurance and product recall insurance
Magnitude of impact	High
Likelihood of occurrence	Med.

Legal violations^（Note）

Details of the risk	Compliance violation of a law or regulation in the countries in which the group operates Increased costs and business restrictions due to the revision of applicable laws and regulations and the stricter interpretation of existing laws and new regulations by the regulatory authorities in the countries in which the group operates Following the occurrence of a legal violation, administrative actions or sanctions are levied by the regulatory authorities, claim for damage compensation is received from an associated party such as a business partner or there is a negative impact on the company’s social reputation Risk of administrative action after exporting to an embargoed country, violation of the foreign exchange law or application of export control regulations or laws outside the region in the United States or China due to the deteriorating relationship between the United States and China Improper accounting or accounting fraud at an overseas site Tax costs due to changes in tax systems for domestic and international transactions in each country, transfer pricing taxation, etc. Additional tax costs due to differences in views with tax authorities in each country, etc.
Main responses	Establish a compliance system based on ethical and legal compliance through Furukawa Electric Group Purpose, the Core Values and Furukawa Electric Group CSR Code of Conduct Along with conducting a compliance self-check every year, provide education within Furukawa Electric Group on themes including the regulations related to competition laws and preventing bribery through compliance seminars and e-learning programs Conduct internal audits and provide education to the related division in regards to security export controls and tariffs; coordinate with a specialist attorney for overseas export control laws Through the regional headquarters in Southeast Asia and China, integrate the procurement, accounting and HR operations at the locations in each region Conduct oversight through financial analysis using data analytics Raise awareness of tax compliance by establishing a basic tax policy Comply with tax laws and implement responses to changes in tax systems and tax administration in each country
Magnitude of impact	High
Likelihood of occurrence	Med.

note

We have been under investigation by the Brazilian competition law authorities concerning auto-parts cartel. In addition, the Company and its consolidated subsidiaries are the defendant in a series of class actions that seek compensation for damages caused by the auto-parts cartel in the United States. It may also be possible that the Company and its associates pay compensation for civil damages to their customers including automobile manufacturers. However, the Company has reached settlement with some plaintiff and customers concerning the above-mentioned on-going cases, and thus believes that it will have limited monetary impact on its financial results. We will continue to work with our corporate lawyers to resolve the issue early and minimize losses. Note that above on-going cases are all related to past violations of competition law including auto-parts cartel, and there are no such violation committed at this point in time.

Raw material and fuel price fluctuations

Details of the risk	Rapid fluctuations in the price of non-ferrous metals such as copper and aluminum, plastics such as polyethylene and fuels such as heavy fuel oil, LPG and LNG due to changes in supply and demand, speculative transactions and global affairs
Main responses	Reflect the market prices for non-ferrous metals, plastics and fuels in the product sales price Implement hedges using futures contracts Reduce costs and conserve energy in the production activities Disperse the risk of price fluctuations through procurement from multiple sources
Magnitude of impact	Med.
Likelihood of occurrence	High

Information systems and information security

Details of the risk	Unauthorized use or system failure resulting from a data leak caused by an external or human factor, such as a cyberattack or unauthorized access Increased security risks caused by the use of legacy systems
Main responses	Based on the basic policy for information security, strengthen security governance for the entire group, provide education and conduct support activities Protect information assets through measures such as enhancing network security from a zero-trust perspective Implement medium-term initiatives to update the legacy systems
Magnitude of impact	Med.
Likelihood of occurrence	High

Exchange rate, interest rate and share price fluctuations

Details of the risk	Fluctuations in the yen-denominated value of overseas transactions including import and export and foreign-denominated monetary claims and debt Fluctuations in the yen-denominated balances in the non-consolidated financial statements prepared in local currency at overseas consolidated subsidiaries (Annual profit is expected to decline by about ¥0.2 billion for every ¥1 appreciation in the JPY/USD exchange rate) Increased capital procurement costs due to rising interest rates (Interest-bearing debt as of the end of the current fiscal year is ¥333.0 billion) Increased retirement benefit costs and additional capital infusions from the company due to lower market value of the pension assets
Main responses	Utilize forward exchange contracts Achieve a proper balance between yen-denominated and foreign-denominated transactions Limit the increase in capital procurement costs resulting from higher interest rates by procuring capital centered on long-term fixed interest rates Reduce interest-bearing debt based on the policy for improving the financial situation and improved capital efficiency through the cash management system (CMS) Structure the asset management portfolio with consideration for reducing asset management risk
Magnitude of impact	Med.
Likelihood of occurrence	High

Research & development and Intellectual property

Details of the risk	Delays to technology development and appearance of alternative products developed through new technology by other companies Litigation, decertification or decreased reputation of the company and its products due to falsification of the research and development data Direct damage or lost opportunities in a business due to a legal dispute with a third party following conclusion of an insufficient technology licensing agreement, or a dispute or negotiations regarding violation of a third party’s intellectual property rights Decreased competitive advantages due to the leak of technology
Main responses	Secure and train personnel with a high level of expertise Secure superiority in technology development through co-creation with external partners Acquire intellectual property rights from the design and development stage, investigate the patents held by other companies and file counter-patents to limit the use of rights by other companies Create technology assets and safeguard them (by classifying them into classified, confidential & intra-company use only, and confidential & intra-division use only; and thoroughly managing information including electronic data); provide education for ensuring legal and regulatory compliance in relation to intellectual property; and conclude confidentiality and other agreements
Magnitude of impact	Med.
Likelihood of occurrence	High

Employee health and safety

Details of the risk	An employee suffers death, inability to work, permanent disability, long-term leave of absence or health impairment due to an occupational accident, traffic accident or illness Disasters associated with breakdowns due to aging equipment, caused by delays in making decisions to invest in manufacturing facilities
Main responses	Definitely implement the three pillars of the safety promotion activity (provide and implement safety related knowledge through the training of safety conscious persons, make the facilities safer through activities to promote fundamental safety and establish a safety-oriented organization by improving the level of safety management) Implement measures for improving health literacy, smoking, metabolic syndrome, mental health, improving physical function, heat stroke, as well as measures for establishing a chemical substance management system at each site through the health management policy set forth every year based on the medium-term occupational health and safety plan Improve facility maintenance level and optimize maintenance and renewal plans
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Deteriorated profitability of construction projects

Details of the risk	(Domestic and overseas) Change in design, soaring of construction material and labor costs during construction. Incurrence of additional costs during a submarine cable laying project due to disasters, infectious diseases, and adverse ocean or weather conditions caused, for example, by a typhoon Payment of repair costs or compensation for damages and long-term extension of the defect warranty in the event of the occurrence of a serious defect or an accident and the resulting delay in construction Unexpectedly large increase in costs or incurrence of additional costs due to a lack of consortium partners’ capability to carry out a project or non-performance of tasks assigned to them (Overseas) Changes in legal regulations, political instability, and exchange rate fluctuations in a country overseas where a construction project is carried out
Main responses	Strengthen activities to conclude contracts under reasonable conditions by strictly identifying a demarcation point, specifications and warranty coverage for each of goods and construction service, and by analyzing project-specific risks Mitigate risks by appropriately monitoring progress and profitability of ongoing projects Transfer risks through purchase of builder’s risk insurance Clarify responsibility relations in a contract upon formation of a consortium, and thoroughly manage construction progress for the entire project including the share of partner companies
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Environmental pollution and environmental regulations

Details of the risk	Occurrence of a problem in relation to environmental conservation due to the leak of toxic substances during the manufacturing process, and new capital expenditures or costs following a revision to an environmental law or regulation Restrictions on the use or disposal of land Additional costs following the enactment of stricter laws or regulations concerning the handling of soil contamination and toxic substances such as asbestos and PCBs that occurred during past manufacturing activities Losses and expenses incurred for a product recall or suspended production and sales due to a violation of a country’s regulations concerning the content of chemical substances in products, such as the RoHS Directive and REACH regulation.
Main responses	At Furukawa Electric Group’s manufacturing sites, based on the environmental management system (ISO14001), thoroughly comply with the various environmental regulations related to the business activities and implement conservation measures Concerning the regulations for chemical substance content in products, issue CSR procurement guidelines and green procurement guidelines, confirm the status of compliance by business partners and conduct regular checks within Furukawa Electric Group in response to the enactment of stricter regulations
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Impairment of non-current assets

Details of the risk	Impairment of a non-current asset due to decreased profitability caused by deteriorating market conditions or business environment
Main responses	Deliberate the appropriateness of investment plan at Investment Committee meeting and Management Meeting Regular monitoring and follow-up after the investment
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Cash management

Details of the risk	(Funds procurement) Deteriorating procurement terms and conditions or potential inability to procure capital due to deteriorating capital market environment Deteriorating procurement terms and conditions and potential enactment of restrictions on capital procurement due to decreased credit standing following deterioration in the financial situation of the company (Credit management) Occurrence of bad debt loss due to an inability to collect accounts receivable following deterioration in the financial situation or cash position of a business partner
Main responses	Secure diverse means of capital procurement, and break up the repayment timing Establish commitment lines and secure a certain amount of cash on hand Increase the ratio of long-term debt while balancing with reductions to capital procurement costs Improve the financial situation Minimize the risk of delayed collection or inability to collect accounts receivable by regularly monitoring the credit status of each client in accordance with the credit management regulations and sharing credit information between the companies affiliated with Furukawa Electric Group
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Disclosure and brand

Details of the risk	Reduced trust due to lack of appropriate information disclosure Lost recognition opportunities and image enhancement opportunities due to lack of consistent communication
Main responses	Establish an appropriate management system and disclose information in a timely and appropriate manner, including the centralized knowledge and management of information deemed to have a significant impact on management and the selection of disclosure methods appropriate to the scale and nature of the information Strengthen the delivery of a unified message through the use of multiple media Consider a concept, slogan and logo to unify the brands
Magnitude of impact	Med.
Likelihood of occurrence	Med.

Links

Annual Securities Report