Business-related Risks

The following is the risk relating to the EIZO group's business and financial that may have a material impact on investors' decisions. However, the following is not an exhaustive all risks associated with EIZO group and risks other than following are exist. We recognizes these risks, and we have established and are operating a company-wide risk management system.

These business-related risks contain forward-looking statements that are based on EIZO group's judgement in light of the information currently available as of May 26, 2023.

Learn more about EIZO's Risk Management System

(1) Rapid Market Changes

The Group proactively develops advanced technologies, satisfies diversifying market needs, and manufactures products and provides systems and services that are always one step ahead of the competition. In this way, the Group enhances the value of its products and systems and strives to achieve overwhelming differentiation in the market. However, the emergence of competitive products from other companies or the intensification of competition due to the entry of new companies may affect the Group's business performance.

(2) Market Fluctuations in Europe

Sales to Europe accounted for 41.6% of consolidated net sales in the current fiscal year (35.1% in the previous fiscal year). Therefore, if the European economy slows down, new tariffs or other export barriers could affect the Group's business results.

(3) Exchange Rate Fluctuations

The Group's transactions in Europe, the U.S., China and other major sales regions are denominated in local currencies, with a higher proportion of sales denominated in European currencies, particularly the Euro. On the other hand, the amounts paid in U.S. dollars for parts purchases are larger than those for U.S. dollar denominated sales in the U.S. and other regions. As a result, net sales and profits are positively affected by the appreciation of the euro against the yen and negatively affected by the appreciation of the U.S. dollar against the yen. Although we strive to reduce or eliminate direct and indirect foreign exchange risks by entering into forward exchange contracts and expanding U.S. dollar-denominated sales, fluctuations in foreign exchange rates may affect transaction prices and sales, which in turn may affect the Group's business performance.

(4) Procurement of Used Parts

The Group procures all parts for LCD panels, semiconductors and mechanical materials that make up its products from outside suppliers. The selection of parts to be used and the determination of suppliers is based on a comprehensive evaluation of their ability to provide stable supply, the existence of business continuity plans, and other factors. In addition, the Group has established a management system to minimize the impact of component procurement problems by establishing long-term, trust-based relationships with suppliers, strategically accumulating inventory to ensure a stable supply of products to customers, and pre-qualifying multiple suppliers, multiple plants, and multiple materials or substitutes when selecting components. However, if the supply of parts to be used becomes tight due to procurement difficulties caused by tight global supply and demand for semiconductors or rising raw material prices, industry restructuring or production discontinuation due to the integration or sale of suppliers' businesses, or accidents or natural disasters, the Group may suspend production or delay sales for a period of time, which may affect the Group's business performance. This may affect the Group's business performance.

(5) Quality Issues

In order to ensure that products with quality defects do not enter the market, the Group has established its own consistent quality management system in all processes from planning and development to manufacturing, sales, and after-sales service, based on a unified basic quality policy and under the certification of various quality management standards by the International Organization for Standardization (ISO). We have established a quality management system and promote consistent quality assurance activities and continuous process improvement throughout the company. In the unlikely event of a safety or quality problem, we have a system in place to take prompt and appropriate action to prevent the recurrence and spread of problems. However, if a serious quality problem were to occur with one of the Group's products, the Group's business performance could be adversely affected due to brand damage, loss of confidence, compensation, loss of market or decrease in product sales.

(6) Securing and Developing Human Resources

We believe that the Group's most important asset for continuously increasing its corporate value in the future is its human resources. In order to maintain and strengthen this human resource base, we are working hard to create an environment in which employees can work with vigor and satisfaction and achieve personal growth, while at the same time fostering a free and vigorous corporate culture. However, there is no guarantee that we will always be able to attract and retain excellent human resources on a stable basis, and if a large number of excellent employees leave the company or if training does not progress as planned, the Group's business development may be affected.

(7) Damage to Corporate Value Caused by Abusive Acquisitions

The Group develops, manufactures, and sells high-quality and highly reliable imaging products by leveraging its strengths in imaging technology and providing optimal imaging environment solutions that meet the needs of the market and customers. Through these efforts, we strive to increase corporate value by improving our business performance and strengthening our financial position. However, an abusive acquisition that damages the Group's corporate value could have an impact on the Group's business performance and financial position.

(8) Risks Specific to Amusement Market Monitors

Our monitors for the amusement market are used embedded in amusement machines. In the pachinko/pachislot industry, the number of pachinko halls has continued to decline in recent years due to a decrease in the number of players. Further contraction of the market size, revision of laws and regulations regarding amusement machines, or the business performance of SANYO Bussan Group, a manufacturer of amusement machines to which we sell our products, may result in a decrease in sales volume, which may affect the Group's business performance.

(1) Country Risk

The Group has development, manufacturing and sales bases overseas and is expanding its business globally. In conducting business in these countries and regions, we are constantly exposed to country risks such as political and social unrest, geopolitical risks such as international conflicts and terrorism, and economic instability. The Group selects appropriate bases based on a thorough understanding of the characteristics of the risks in each country or region, and strives to strengthen risk management to minimize damage in the event of an emergency. However, depending on the level of risk, the Group's business activities may be suspended or restricted, which may affect the Group's business performance.
In the past, the Group's sales company in Sweden was engaged in sales activities for the Russian market, but in view of the current situation in Russia and Ukraine, we have suspended all shipments, new orders, marketing and sales activities for the Russian market. The impact of this action on the overall business performance of our Group is negligible.

(2) Environmental Regulations

The Group's management policy is to consistently manufacture environmentally friendly products by reducing the use of chemical substances of environmental concern in its products, adopting mechanisms and designs with excellent recyclability and ease of disassembly, using materials with low environmental impact, and working to reduce power consumption during product use. In addition, we actively participate in related industry associations to gather information on social trends related to the environment. However, the enforcement of new environmental regulations in the future may affect the Group's results of operations if additional costs are incurred to comply with the regulations or if there is a delay in the development or introduction of compliant products.

(3) Compliance

In order to comply with various laws, regulations and rules in each country around the world in the course of conducting business, the EIZO Group is publicizing the EIZO Group Code of Conduct throughout the Group and paying close attention to legal compliance, including the establishment of a compliance system based on internal regulations such as anti-bribery rules, while improving and strengthening internal controls and company-wide risk management systems. We are also working to improve and strengthen our internal control and company-wide risk management systems. We have also established the "EIZO Supplier Code of Conduct" for our suppliers, and we work with our suppliers to promote human rights initiatives, including the responsible sourcing of minerals. However, as laws and regulations become increasingly complex and globalized, in the unlikely event of a violation or inability to respond to the enactment, amendment, or repeal of new laws and regulations, our Group's business activities may be restricted, public confidence may be damaged, and fines and penalties may be imposed, which could affect our business performance. In this case, the Group's business performance may be adversely affected.

(4) Information Security

The Group recognizes that it has a social responsibility to protect the information assets collected through its business activities from various information security threats and to manage them appropriately. We have obtained ISO/IEC 27001 certification, an international standard, and operate an information security management system based on ISO/IEC 27001 certification. However, in the event of a system shutdown, loss, leakage or falsification of information due to computer virus infection, unauthorized access or new information security threats, our business activities may be disrupted and the Group's business performance may be affected.

(5) Intellectual Property Rights

"The imaging equipment industry in which the Group operates is characterized by rapid technological innovation, and companies, including those in the same industry, are actively applying for patents, utility models, trademarks, designs, and other intellectual property rights. The Group is strengthening its management of intellectual property rights by actively applying for proprietary technologies, gathering information to avoid inadvertently infringing on other companies' patents, and entering into appropriate licensing agreements for industry standards.
We are also strengthening our monitoring and alert systems for infringement of our patents, trademarks and other intellectual property rights by other companies. However, unexpected patent infringement warnings, lawsuits, claims for damages, large amounts of legal fees and other expenses due to licensing agreements, etc., settlement costs and royalty payments could affect the Group's business performance.

(6) Taxation

Each of the companies that make up our Group calculates tax amounts in accordance with the tax laws of each country and pays taxes in an appropriate manner. Although we pay close attention to international tax risks such as transfer pricing taxation in each applicable country, there is a possibility that additional taxation may result from disagreements with the tax authorities.

(1) Climate Change

The Company has expressed its support for the Task Force on Climate-related Financial Disclosure (TCFD) and has analyzed the financial impact of climate change on the Group in accordance with the TCFD's disclosure framework. We have also disclosed the details of our efforts to address climate change based on the results of our analysis in our "Transition to Net Zero. However, as the Group operates globally in the areas of development, procurement, production, and sales, there is a possibility that the Group's business performance could be affected if climate change policies, laws, and regulations are strengthened in each country or if climate change causes changes in the business environment.

(2) Natural Disasters

The Group has manufacturing factories and R&D facilities in Japan and overseas. For this reason, the Group has taken disaster prevention measures with regard to natural disasters such as earthquakes, typhoons and floods, and has formulated a business continuity plan (BCP) to minimize the impact of such disasters, and is working to improve its systems. However, in the event of an unforeseen large-scale natural disaster, the Group's development, production, materials procurement, logistics, and other operations could be severely affected, resulting in the suspension of operations for a period of time, the repair or replacement of damaged facilities, and other losses that could affect the Group's business performance.

(3) Infectious Disesases

In the widespread outbreak of a new infectious disease in the future, the supply chain may be disrupted and we may be forced to adjust production due to difficulties in obtaining parts. In terms of sales, the postponement of the timing of sales of our products and delays in developing new customers and projects due to restrictions on customer visits may affect the Group's business performance. In terms of sales, the Group's business results may be affected by such factors as the postponement of sales of our products and delays in developing new customers and projects due to restrictions on customer visits.