TAKEDA iP HOLDINGS CO., LTD.

The expansion of DX and rising prices of printing paper are accelerating the contraction of the domestic print-related market (paper media), which is explicitly identified as the risk that should be resolved with the highest priority. If the contraction proceeds more rapidly than expected, the decline in operating rates could increase the burden of fixed costs such as labor costs and depreciation, potentially having a major impact on business performance. As countermeasures, the company is strengthening its Semiconductor-Related Masks business and developing new businesses, and is optimizing production facilities to build a low-cost production system.

Amid the prolonged contraction of demand for paper media, a state of excess supply capacity has continued, and order unit prices have continued to decline or remain low and stable. If the contraction proceeds rapidly, a decline in order unit prices, a decline in equipment utilization rates, and an increase in the fixed cost burden could occur simultaneously, potentially affecting business performance. The company is seeking to transform its earnings structure through productivity improvements, procurement cost reductions, operational efficiency gains through DX utilization, and expansion of the BPO, logistics, and DX domains as well as the Global Package Business.

The Information & Communications business handles many projects aligned with customers' fiscal years, resulting in a tendency for sales and profit to be concentrated in the second half; over the past 10 fiscal years on average, the second half has accounted for 53% of annual net sales and 72% of operating profit. If business-disrupting factors such as the Great East Japan Earthquake or the COVID-19 pandemic were to occur in the second half, this could have a major impact on business performance. The company is working to reduce this risk by expanding year-round continuous orders through one-stop solutions and by expanding the BPO, Global Package, and Semiconductor-Related Masks businesses, which have different seasonality.

If raw material and energy prices rise, logistics costs surge, supply chains are disrupted, or major suppliers face supply constraints, this could affect business performance and financial condition through higher procurement prices, increased production costs, and delivery delays. These factors are influenced by a variety of external factors, including changes in the global situation, market conditions, exchange rates, energy prices, and logistics supply and demand. The company is responding by appropriately passing costs on to selling prices, securing multiple suppliers, optimizing inventory management, and consolidating facilities and reducing fixed costs, among other measures.

The company is working to expand growth areas such as the Semiconductor-Related Masks business, the Global Package Business, and the BPO, logistics, and DX domains, but changes in market conditions, intensifying competition, the need to respond to technological innovation, and the failure to realize expected synergies from M&A could result in outcomes that fall short of initial expectations. In such cases, delays in transforming the business portfolio could affect business performance and financial condition. The company is carefully considering relevance to existing businesses, profitability, growth potential, and feasibility as it proceeds with M&A and new business development.

While the company has several major customers with large transaction volumes and its ongoing business relationships with them are a strength, changes in the industry trends, procurement policies, or corporate consolidations affecting these major customers could impact business performance and financial condition. A revenue structure with a high degree of dependence on specific customers carries the risk of being significantly affected by a single management decision on the customer's part. The company is working to move away from dependence on specific customers by deepening relationships with existing customers, developing new customers across a broad range of industries, and strengthening proposal-based sales.

The company needs to secure and develop professional and global talent in various fields such as sales, manufacturing, development, and administration, but competition for excellent talent is intensifying due to the declining working-age population resulting from the falling birthrate and aging population. If the company fails to secure and develop talent as planned, or if excellent personnel leave, this could affect business performance and financial condition. The company is responding by actively promoting new graduate and mid-career hiring, establishing human rights and human capital policies, developing a workplace environment where diverse employees can thrive, and hiring and developing international students.

Systematic development of a successor to the Chief Executive Officer (CEO) has not yet been achieved, and this is explicitly identified as one of the significant management issues. If the CEO becomes unable to perform their duties, or if the development of successor candidates does not proceed appropriately, this could affect business results and financial condition. The company's policy is to formulate and implement successor candidate development plans through the Nomination and Compensation Advisory Committee, in which independent outside directors constitute a majority.

Given that the company handles a large amount of customer information and confidential information, incidents such as information leaks, unauthorized use, or virus infections from targeted attack emails causing information systems to malfunction are anticipated. Responding to such incidents could incur substantial costs, and the company could lose social trust. The company is responding through Privacy Mark and ISO27001 certification, systems to prevent misdirected emails, use of dedicated data centers, employee training, and enrollment in cyber insurance, among other measures.

There are both transition risks, in the form of additional capital expenditure and technology development costs incurred to comply with regulations such as greenhouse gas emission restrictions, and physical risks, in the form of factory production stoppages and supply chain disruptions due to natural disasters. If these risks materialize, they could affect the company's activities, business results, and financial condition. The company has articulated its commitment to carbon neutrality in its "Sustainability Policy" and "Environmental Policy," and is proceeding with risk analysis and countermeasures from a long-term perspective.