ZACROS Corporation

The Company is engaged in Information & Electronics related products such as protective film for liquid crystal displays and interlayer insulation film for personal computers and servers, and sharp fluctuations in demand in these markets could significantly affect business performance. While demand is on an expanding trend along with the advancement of the highly information-oriented society, it also carries the risk of market cycle fluctuations. As countermeasures, the Group is promoting monitoring of market conditions and swift responses, as well as diversification of business.

The industry to which the Group belongs includes a wide range of competitors from major companies to small and medium-sized enterprises, and even in fields where the Company has a competitive advantage through proprietary technology, there is a risk of losing market share due to imitation by competitors or their development of proprietary technologies. If prices or market share decline due to changes in the competitive landscape, this could adversely affect business performance. As countermeasures, the Group is promoting further improvement of technological capabilities, strengthening of trust relationships with customers, and differentiation strategies.

Prices of raw materials used in packaging materials and various processed films are affected by international commodity markets such as crude oil and naphtha, and business performance could deteriorate if price increases or currency fluctuations exceed what can be absorbed through rationalization and price pass-through. There is also a risk that a breakdown in supply-demand balance due to natural disasters, policy changes, or shifts in international circumstances could make it impossible to procure necessary raw materials, resulting in difficulties in normal production and a decline in sales. As countermeasures, the Group is gathering information on market trends, engaging in advance purchasing, developing new materials and manufacturing methods, and building sustainable relationships with suppliers.

In addition to manufacturing and sales operations overseas, the Group conducts export sales and material procurement denominated in foreign currencies, and fluctuations in exchange rates could directly affect business performance. The Group faces bidirectional risks: deterioration of export profitability during yen appreciation, and increases in the cost of imported raw materials during yen depreciation. As a countermeasure, the Group utilizes hedging measures such as forward exchange contracts.

The Group conducts import and export of products and raw materials as well as overseas local production and sales, and business performance could be adversely affected if risks materialize such as sudden changes in tax systems and regulations, political and economic turmoil, terrorism or conflict, and natural disasters in the countries and regions where it operates. In particular, there is a risk that changes in trade regulations and tariff policies in various countries could disrupt the supply chain, including supply between factories within the Group. As countermeasures, the Group is strengthening information gathering on the countries in which it operates, optimizing the global supply chain, and securing alternative procurement sources.

As environmental regulations are being strengthened around the world toward carbon neutrality, reduction of petroleum-derived plastic usage, and the realization of a circular society, business performance could be affected if the Group is unable to respond to these social demands. There is also a risk that substantial capital expenditure and other expenses will be required to comply with environmental regulations. As a countermeasure, the Group views environmental response as a growth opportunity and is actively promoting transformation of production processes, utilization of natural energy, and development of environmentally friendly products and services.

The Group utilizes information systems across its overall business activities, including manufacturing, research and development, and sales, and business performance could be significantly affected if business interruption or leakage of confidential information occurs due to cyberattacks, power outages, natural disasters, or system equipment failures. Along with the progress of digitalization, cyber threats are becoming more sophisticated and diverse, requiring continuous strengthening of countermeasures. As countermeasures, the Group implements measures by importance level based on its information security policy, establishes systems for technical failure response and incident detection, and provides education and training to officers and employees.

In capital expenditures aimed at strengthening production capacity and differentiation, there is a risk that the investment recovery period could be prolonged due to changes in market conditions, increases in equipment costs, or construction delays. There is also a risk that increased burdens of depreciation and financing costs could affect earnings, adversely impacting business performance. As countermeasures, the Group examines risks and avoidance measures and conducts profitability analysis at the time of investment planning, monitors construction progress and production conditions, and works to strengthen its financial structure.

The Group carries out acquisitions and business alliances to accelerate business growth, but if there are significant changes in market or competitive conditions, or if business development does not proceed as planned, upfront investments such as joint development through business alliances could adversely affect business performance. There is also an inherent risk of impairment of goodwill and investment assets. As countermeasures, the Group conducts detailed due diligence on investment targets and continuously monitors the management plans and market conditions of investee companies.

As quality requirements in the industry increase, if defects occur in the Group's products, the Group could bear liability for damages, affecting business performance. In particular, for high-function products such as those related to Information & Electronics and packaging materials, there is a risk that quality defects could spread to customers' production lines. As countermeasures, the Group continuously implements acquisition and proper operation of quality management system certifications, enrollment in product liability insurance, appropriate structuring of contract terms with customers, and quality improvement activities through the development of proprietary technology.