Risks associated with business activities

At Yaskawa, the Executive Committee and the Board of Directors monitor risks associated with the execution of management, including economic and market conditions. In addition, we have established the Basic Rules for Crisis Management with the aim of promptly and appropriately dealing with risks that may arise in Yaskawa Group, and have established the Risk Management Committee in accordance with these rules. The Risk Management Committee is responsible for developing risk management systems, planning and promoting risk management education, and taking various measures in the event of a risk. The status of risk management is reported to the Executive Committee and the Board of Directors as appropriate. Major risks that may affect Yaskawa Group’s performance and financial position include the following. Matters concerning the future in the text are based on Yaskawa Group’s judgment as of the end of the fiscal year under review.

 

(1) Risk of impacted by COVID-19

Yaskawa Group is conducting business in countries and regions affected by COVID-19. Yaskawa Group’s operating results may be affected by a decrease in demand resulting from the spread and prolongation of infectious diseases caused by COVID-19. In addition, if an infected person occurs in an employee or family member of Yaskawa Group, it may affect Yaskawa Group’s production and other business activities. If a lockdown or a state of emergency is declared in the country or region where a parts supplier is located, the procurement of parts by Yaskawa Group or its suppliers may be affected. This can lead to delays in production and product delivery for Yaskawa Group and its suppliers. In addition, the impact of the spread of COVID-19 on customers’ business activities could lead to a decrease in demand, which may lead to a decrease in orders and revenue for Yaskawa Group.
In response to the risks caused by the spread of COVID-19, Yaskawa Group established a task force in late January 2020, and is taking appropriate measures to ensure employee safety and business continuity and to minimize damage, including thorough in-house infection control measures, teleworking. In Yaskawa Group, given the uncertain outlook in COVID-19 crisis, we will continue to reduce expenses, excluding the necessary investment for growth. At the same time, we will strive to expand our business performance by taking advantage of new automated demand in the post-COVID-19 new normal as a business opportunity.

 

(2) Risks relating to global economic conditions, uncertainties in each country, and market trends related to Yaskawa products

Yaskawa Group is actively developing its business in Japan, the Americas, Europe, and other Asian countries to achieve sustainable business expansion. The overseas sales ratio of Yaskawa Group was 65% in the fiscal year ended February 2021, hence changes in the situation overseas have a major impact on Yaskawa’s corporate activities. In particular, sales from China account for 25% of the total. Overseas countries that Yaskawa Group runs a business involve political, economic, and legal uncertainties due to political changes, economic and market trends, unforeseen changes in laws and regulations, and differences in religion and culture. In any case that these potential risks become a reality, Yaskawa Group’s performance and financial position may be adversely affected.
Yaskawa Group’s main products, AC servo motor and its controller, arc welding robots, spot welding robots, painting robots, and handling robots for semiconductor and LCD manufacturing equipment to be used in clean and vacuum environments, are greatly affected by capital investments and production trends in the semiconductor, automobile, LCD, and electronic component industries.
Any deterioration in these industry trends could adversely affect Yaskawa Group’s performance and financial position. Yaskawa will focus on further business expansion in the field of factory automation by providing new solutions, including digital data management which i3-Mechatronics play a key role in to address the risks associated with the global economy, uncertainty in each country, and market trends related to Yaskawa products. In addition, we will strive to expand and stabilize our business by creating new businesses and markets in the field of mechatronics applications for the sustainable development of society. In addition to promoting local production and procurement, we are also working to minimize the impact of risks, such as demand fluctuations and geopolitical risks, by accelerating “YDX” (YASKAWA Digital Transformation: Promoting DX at Yaskawa) to strengthen our business base to monitor market changes in real time and respond flexibly and promptly.

 

(3) Risk of exchange rate fluctuations

Yaskawa Group is exposed to the risk of exchange rate fluctuations because it operates globally and its business partners are located all over the world. In addition to selling and providing products and service and purchasing raw materials and parts in local currencies such as U.S. dollar, Euros, and Chinese yuan, Yaskawa Group also exports products in local currencies. Unexpected fluctuations in exchange rates could weaken the competitiveness of Yaskawa Group’s products and adversely affect its operating results and financial condition. In addition, as Yaskawa Group holds assets and liabilities denominated in local currencies, foreign exchange rate fluctuations may have an adverse effect on Yaskawa Group’s financial position, which is reported in yen.
For the year ended February 28, 2021, the foreign exchange sensitivity (Effect of 1% change from historical exchange rate (US dollar: 106.0 yen, Euro: 122.8 yen, Chinese Yuan: 15.55 yen, Korean Won: 0.091 yen)) of revenue was approximately 690 million yen in U.S. dollar, 560 million yen in the euro, 940 million yen in the Chinese yuan, and 200 million yen in the Korean won, while that of operating profit was approximately 150 million yen in the U.S. dollar, 70 million yen in the euro, 300 million yen in the Chinese yuan, and 130 million yen in the Korean won.
In order to address the risk of exchange rate fluctuations, Yaskawa Group is working to build an earnings structure that is resistant to exchange rate fluctuations by promoting local production and procurement in addition to executing forward exchange contracts and currency hedging.

 

(4) Risks associated with procurement of raw materials

Yaskawa Group procures raw materials such as steel materials and various parts from a number of suppliers, but it may not be able to obtain necessary quantities continuously due to surging procurement prices or increasing demand in the industry. Furthermore, due to natural disasters, epidemics of infectious diseases, accidents, and worsening business conditions, it may be difficult for suppliers to provide Yaskawa Group with parts and raw materials in a stable manner.
In addition, more sophisticated response is required to respond to growing social demands such as responses to conflict minerals in the supply chain and consideration for the environment. If suppliers of parts do not respond properly, it will affect the procurement of parts and sales of Yaskawa products. This could have a negative impact on Yaskawa Group’s performance and financial position.
To address these procurement risks, Yaskawa Group is working to strengthen its procurement functions. For example, we are building relationships of trust through dialogue with suppliers, diversifying our suppliers globally, responding to demand fluctuations by ensuring appropriate inventory levels and promoting local production and procurement, and enhancing our responses to disaster risks through the formulation of Business Continuity Plans (BCP) for our domestic and main overseas bases.

 

(5) Risk of increased competition

Yaskawa Group has strong competitors in each of its business areas. In the face of intensifying price competition in particular, there is no guarantee that Yaskawa Group will remain competitive in the future, even in areas where it has a high market share. Intense price competition may adversely affect Yaskawa Group’s performance and financial position. In addition, it is necessary to launch Yaskawa Group products in a timely and appropriate manner in order to secure competitiveness in technology and quality. If the competitiveness of Yaskawa Group’s products is relatively weak or if the timing of product rollout is inappropriate, Yaskawa Group’s performance and financial position may be adversely affected.
To address the risk of intensifying competition, Yaskawa Group continues to strengthen its R & D capabilities, starting with the establishment of YASKAWA Technology Center. At the same time, the company is working to differentiate its products and services and increase added value by providing optimal solutions for customers through i3-Mechatronics.

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