Business Risks

Of the business and accounting circumstances described in the marketable securities report, the following information could have an important impact on investor decisions.

Note that indications about the future reflect the Shimadzu Group's judgment as of the end of the current consolidated fiscal year.

(1) Market Trends in and outside Japan

About 50 % of consolidated net sales for the Shimadzu Group are from within Japan. Shimadzu Group sales strategies are prepared and executed in close cooperation between Shimadzu Corporation (in Japan) and individual subsidiaries in respective regions around the world, based on market size and industry structure in those regions. Nevertheless, unexpected changes in political, economic, capital equipment investment, or other trends in respective countries, including Japan, that were not anticipated when the strategies were prepared could potentially impact Shimadzu Group results and financial status. Furthermore, due to the increasing specialization among companies internationally, an economic fluctuation in one country could potentially impact Shimadzu Group results and financial status if the fluctuation causes a global supply chain bottleneck that precipitates a downturn in corporate performance or reluctance to invest in capital equipment.

(2) Business Activities outside Japan

As part of our business strategy, the Shimadzu Group is currently expanding business operations in markets outside Japan in order to increase sales revenue, reduce costs, and improve profitability. To strengthen the management base for supporting business activities outside Japan, major subsidiaries in respective regions have been assigned the function of coordinating corporate governance within their region in an effort to better understand and appropriately address risks in respective regions. However, business activities outside Japan can involve unexpected changes in laws or regulations, vulnerabilities in the industrial base, terrorism, war, or other risks of social or political disruption, which could potentially impact Shimadzu Group results and financial status.

(3) Product Quality

In an effort to ensure customers are supplied products and services with excellent quality and that provide maximum value to customers, the Shimadzu Group has built an ISO-certified quality system, specified a Quality Policy, and continuously implements improvements at each stage of the product life cycle, including development, manufacturing, sales, and service. In addition, to achieve customer satisfaction by further improving product safety, which is a fundamental and important product requirement, we have established a Basic Policy for Product Safety as a statement of commitment that the entire Group will be united in prioritizing the safety and trust of customers. However, if a quality problem occurs due to products used in diverse difficult-to-anticipate environments, or if product safety concerns occur due to new technologies or product management levels, it could potentially decrease trust in the Shimadzu Group, decrease brand strength, and impact Shimadzu Group results and financial status.

(4) New Product Development Capabilities

Due to the high specialization of Shimadzu Group businesses, a high level of advanced technical capabilities are required. Therefore, large amounts are invested in product development. However, delays in commercializing new technologies or failing to develop new products that match market needs could decrease future growth and profitability, due to decreased competitiveness and businesses that are inconsistent with market trends, which could potentially impact Shimadzu Group results and financial status.

(5) Purchasing/Procurement

To ensure the Shimadzu Group can reliably procure raw materials and services that satisfy Shimadzu Group quality and environmental requirements, trustworthy suppliers are carefully selected. In addition to holding a certain stock of important raw materials and other items, we also select alternative suppliers to ensure adequate production capacity, without overdependence on any specific suppliers. Nevertheless, natural disasters, diseases, accidents, supplier bankruptcies, or other factors could cause shortages or limit the supply of raw materials or other inputs, which could impact the production capacity of the Shimadzu Group. Long-term difficulties in procuring raw materials or other inputs or a sharp increase in procurement costs could result in lost opportunities, decrease product price competitiveness, decrease profit margins, or cause other consequences that could potentially impact Shimadzu Group results and financial status.

(6) Hiring Human Resources

Hiring the human resources necessary for Shimadzu Group business growth can involve competing with other companies involved in research and development or manufacturing to hire available human resource candidates. In particular, given that many of Shimadzu’s research and development departments are located in Japan, which is currently experiencing a declining birth rate, an aging population, and a shrinking workforce, there is a risk that we will not be able to satisfy internal human resource demands. Though retention of human resources at Shimadzu is currently stable, if the fluidity of the labor market in Japan increases, there is a risk of an increasing number of employees leaving the company. Under such circumstances, it would be difficult to eliminate the effects of global human resource fluidity. Therefore, we are engaged in minimizing the potential impact on businesses by hiring human resources able to be immediately productive and reallocate current human resources within the company. However, if competent human resources are not available or an outflow of employees cannot be prevented, it could potentially impact Shimadzu Group results and financial status.

(7) Laws and Regulations

The Shimadzu Group is committed to obtaining applicable permits and licenses and complying with applicable laws and regulations required by governments in and outside Japan for Shimadzu’s various businesses deployed around the world, such as security trade controls, anti-bribery laws, and anti-monopoly laws. In addition to compliance with laws and regulations, the Shimadzu Group has also specified a Corporate Code of Ethics, based on Shimadzu’s corporate philosophy, management principle, and CSR charter, that specifies ethics and behavioral norms applicable to both directors and employees. To prevent compliance problems, Shimadzu uses group training, E-learning, and other methods to teach and instill the code. To ensure corporate compliance within the Shimadzu Group, we also monitor compliance with laws, regulations, and other requirements whenever appropriate, have established contact points within and outside the company for consultation and notification, and have established a system for reporting any problems. However, an inadequate understanding of such laws and regulations or difficulty appropriately complying with an unexpected change in such laws or regulations might be treated as a violation of the various laws or regulations. That could result in a fine, penalty, or other financial loss, business suspension, or some other government action as well as decreased trust that could potentially impact Shimadzu Group results and financial status.

(8) Intellectual Property Rights

To ensure the Shimadzu Group can acquire intellectual property rights useful for conducting current business activities or deploying future businesses, research centers, business divisions, and the Intellectual Property Department work together to create intellectual properties. Meanwhile, a system has also been established for investigating and reviewing intellectual property rights of other companies in an effort to prevent problems. In addition, intellectual property training sessions are periodically held for technical personnel for the purpose of improving the intellectual property skills of technical personnel. Nevertheless, intellectual property disputes with other companies can sometimes occur due to how the scope of rights is interpreted, which could potentially impact Shimadzu Group results and financial status.

(9) Compliance with Environmental Regulations and Addressing Climate Change

To prevent global warming, water pollution, air pollution, noise, and soil contamination, and to ensure proper waste treatment and use of hazardous chemical substances, the Shimadzu Group is committed to compliance with the various applicable environmental laws and regulations required by governments in and outside Japan. To address climate change, the Shimadzu Group has specified a goal of reducing medium/long-term CO2 emissions from the Group by 30 % by 2030 (versus FY 2017). Shimadzu is also engaged in other measures to solve environmental challenges and appropriately disclose environmental information, such as by obtaining certification from the international Science Based Targets (SBT) initiative for promoting reductions based on science and by endorsing the Task Force on Climate-related Financial Disclosures (TCFD), which promotes the disclosure of predicted impacts from climate change. However, if a future event or unexpected circumstance makes it especially difficult to comply with environmental regulations, the cost of addressing environmental challenges could increase or business activities might be interrupted, which could potentially impact Shimadzu Group results and financial status.

(10) Information Security

The Shimadzu Group holds various confidential information, such as information important for Shimadzu business activities and personal information collected from customers. To prevent such information from being leaked through the theft or loss of IT assets and prevent information alteration or leaks, system failure, or other damage due to a cyber-attack, the Shimadzu Group has established an information security system, specified a basic policy for information security, and has implemented security measures, such as preventing unauthorized access from outside the company, encrypting data, and preventing the leakage or alteration of information via Shimadzu’s external website. In addition to security measures for networks and IT assets, employees periodically receive information security training. However, if important information or personal information is leaked, business activities are interrupted, or other problems occur due to a cyber-attack that exceeds predictions, unexpected unauthorized access, or other circumstances, it could potentially impact Shimadzu Group results and financial status.

(11) Natural Disasters, Etc.

To be prepared in the event of a major earthquake, fire, or an infectious disease such as a new strain of influenza, the Shimadzu Group has implemented necessary safety measures, established a business continuity plan (BCP) to promote a quick recovery, introduced a security confirmation system, conducted disaster training, and implemented other measures. Nevertheless, given that Shimadzu Group business activities are deployed throughout the world, it is difficult to avoid or manage all risks of damage due to a natural disaster or infectious disease, for example. Therefore, if unexpectedly large scale damage occurs, it could potentially impact Shimadzu Group results and financial status.

(12) Impact of Exchange Rate Fluctuations

Given that the Shimadzu Group conducts business throughout the world, business activities that involve transactions in foreign currencies are exposed to the risk of foreign exchange fluctuations. Though efforts are made to minimize foreign exchange fluctuation risks, such as by establishing local production capabilities or using forward exchange contracts, it is difficult to completely eliminate their impact. Furthermore, because consolidated financial statements are prepared with local currency amounts converted to yen, values can vary after conversion depending on the exchange rate. Normally, increases in the yen value relative to the local currency have a negative impact on Shimadzu Group results. Consequently, especially large exchange rate fluctuations could potentially impact Shimadzu Group results and financial status.

(13) International Taxes

Given that the Shimadzu Group conducts business throughout the world, transactions involve international tax risks, even for transactions within the Shimadzu Group, due to transfer pricing taxation, for example. Though Shimadzu is committed to paying appropriate taxes in accordance with applicable tax laws of respective countries and detailed precautions are taken to minimize international tax risks, changes in the tax system of individual countries, differences between the views of Shimadzu and of taxing authorities, or other factors could result in unexpected tax obligations that could potentially impact Shimadzu Group results and financial status.

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