Of the matters concerning the business and financial conditions described in our Annual Securities Report, the major risks that management recognizes may have a significant impact on the consolidated company's financial position, business performance, and cash flows, are as follows.
Note that forward-looking statements on this page are based on judgments by the Ichikawa Group as of the end of the current fiscal year.
Paper and Paperboard Production Trends
As a specialist in papermaking equipment, the Ichikawa Group sells products to paper companies in Japan and overseas. However, our main customers, accounting for a large proportion of both volume and value, are paper companies in Japan. Therefore, the demand for our main products, such as papermaking felts and belts, is greatly influenced by paper and paperboard production trends in the Japanese pulp and paper industry. There is a risk that Japanese demand for newsprint and printing paper may decrease due to the accelerating shift from paper media to digital formats. In overseas markets, there is a risk of decreased profitability due to changes in the business environment, such as intensifying price competition.
To address these risks, the Ichikawa Group is working as one to propose and provide the optimal combination of our products to meet the high-level needs of our customers at home and abroad. We are also aiming to maximize the capabilities of our customers' paper machine press sections, contributing to "energy-saving, environmentally friendly papermaking" through our products.
Raw Materials
The Ichikawa Group's primary raw materials are petroleum-related. Therefore, raw material costs and procurement may be affected by surges in crude oil prices and production trends in the petrochemical industry.
To mitigate this risk, we are exploring alternative materials and reviewing raw material suppliers both in Japan and internationally to respond flexibly to market fluctuations in raw materials. We apply similar efforts not only to our primary raw materials but also to our secondary materials.
Exchange Rates
The Ichikawa Group's overseas sales ratio was 55.4% in the previous fiscal year and 59.2% in the current fiscal year, exposing us to exchange rate fluctuation risks. For foreign currency-denominated accounts receivable, we use forward exchange contracts to minimize the impact of short-term exchange rate fluctuations. However, significant exchange rate fluctuations over the medium to long term may affect the Group's performance and financial condition.
Additionally, the assets, liabilities, revenues, and expenses of overseas consolidated subsidiaries denominated in local currencies may be affected in terms of their yen-converted value due to the exchange rate at the time of closing.
To address these risks, we use forward exchange contracts to minimize short-term impacts for major currencies such as the US dollar and euro. We also hold a portion of our foreign currency sales revenue in foreign currency deposits, anticipating one-time payments for purchasing production equipment from overseas manufacturers.
Interest Rates
As of March 31, 2024, the Ichikawa Group has an interest-bearing debt of 910 million yen. A significant increase in interest rates over the medium to long term could affect the Group's performance.
To address this risk, we will closely monitor the rapidly changing funding environment.
Stock Prices
As of March 31, 2024, the Ichikawa Group holds investment securities worth 5,280 million yen, primarily consisting of marketable stocks of major customers and partner financial institutions. We are exposed to the risk of fluctuations in these stock prices. As of March 31, 2024, we also have unrealized gains of 3,649 million yen, but this figure may change depending on future stock price movements.
To address this risk, our Board of Directors conducts an annual review of each stock holding, examining the purpose of holding, transaction status, impact on our ROE, and whether the benefits and risks of holding are commensurate with the capital cost. As a result, for stocks deemed to have little significance for holding, we will consider reducing our position after thorough discussions with the relevant parties, taking into consideration the impact on our business.
Natural Disasters
Unforeseen natural disasters, such as earthquakes or floods, could cause significant damage to production facilities or infrastructure such as transportation systems, causing manufacturing to be suspended or delayed, significantly impacting our business operations and potentially affecting our ability to secure profits.
To address this risk, we have established a business continuity plan that outlines procedures for immediate recovery response to ensure that all employees can respond quickly and accurately to minimize human casualties and the impact on our operations.
Other Risks
If a global economic slowdown affects our business activities, including our production systems, logistics, and sales activities, it could significantly impact the Group's performance.