Among business- and management-related matters described in UACJ's securities report (originally submitted on June 28, 2024), the following are considered by the Company’s management to be priority risks that could potentially have a significant impact on the decisions of investors based on their likelihood of materializing, degree of impact, and other factors.
The following terms are included in the tables for “1. Main external risks” and “2. Main internal risks.”
Risk details and impacts Specific information about the risk and assumed impacts on the Group’s businesses if the risk materializes
Opportunities: The impacts of the risk include opportunities for the Group’s businesses
Threats: The impacts of the risk include threats to the Group’s businesses
Actions Countermeasures against risks or initiatives to capitalize on opportunities
1. Main external risks
Climate change and other changes in the global environment
Risk details and impacts
Actions
Threats
The Group could lose business opportunities and its products could become less competitive if it fails to sufficiently reduce greenhouse gas emissions.
Matters concerning climate change are periodically assessed and discussed at the management level through UACJ’s Climate Change Countermeasures Steering Committee.
UACJ’s materiality is defined, and environmental activities are routinely carried out to accomplish targets of key performance indicators in accordance with action plans.
The Group actively participates in international initiatives to combat climate change, including the Task Force on Climate Related Financial Disclosures, the Carbon Disclosure Project, and the GX League (from fiscal 2024) and has acquired certification from the Aluminium Stewardship Initiative.
The Group has declared its intention to become carbon neutral, and has begun using internal carbon pricing and providing environmental assurance for mass balance systems. The Group has also begun complying with the Carbon Border Adjustment Mechanism (from January 2024).
In environment-related materiality, in addition to the existing issue of “taking measures to address climate change,” the Group has disclosed additional materiality issues, “leading a circular economy in aluminum” and “supporting environmental health and nature (nature positive)” (December 2023).
Opportunities
The Group could expand business opportunities and help solve environmental issues by providing products and services that make effective use of aluminum’s beneficial properties, including its light weight, excellent thermal conductivity, and ability to be continually recycled.
Changes in government policies, economic trends, and geopolitical risks
Risk details and impacts
Actions
Threats
The Group could incur higher selling, logistics, and procurement costs, or have trouble procuring supplies and operating if political and economic conditions change, regulations are abruptly introduced, or public order deteriorates in a country where it manufactures products or its customers and suppliers operate.
The Group procures raw materials from diverse suppliers to avoid overdependence on specific countries and regions.
Sufficient inventories of necessary materials are maintained, and multiple alternative manufacturing sites are considered.
Measures are continually executed to improve the Group’s ability to effectively respond to changes in its operating environment, such as measures to reduce the break-even point.
The Group has set up product pricing system with customers, allowing it to reflect higher costs and changes in market prices in selling prices.
The Group has stepped up efforts to monitor political and economic trends in Japan and overseas.
Threats
Conflicts or other problems in countries where the Group operates could affect the safety of employees.
A pandemic such as the spread of a new strain of coronavirus
Risk details and impacts
Actions
Threats
The ongoing pandemic or a future epidemic could affect the Group’s purchasing and procurement from suppliers.
Business continuity plans have been reinforced to respond to pandemics.
Sufficient inventories of necessary materials are maintained.
The Group flexibly plans production and secures information needed from customers at an early stage.
Threats
Changes in customers’ operations resulting from the ongoing pandemic or a future epidemic could affect the Group’s manufacturing operations and sales.
Threats
The ongoing pandemic or a future epidemic could lead to delays, suspensions, or stoppages of the Group’s operations.
Threats
Increased virulence of an infectuous disease could affect the lives of employees.
Natural disasters
Risk details and impacts
Actions
Threats
The Group’s manufacturing operations and sales could be impacted if a natural disaster, such as an earthquake, tsunami, typhoon, or flood, threatens the safety of its employees and their families or the operations of production facilities at one of its workplaces around the world, or damages infrastructure or facilities operated by its customers or suppliers.
Progress is being made to establish business continuity plans in all divisions and workplaces, and business continuity management is continually strengthened on a group-wide basis.
Workplaces periodically conduct drills to ensure the effectiveness of business continuity management.
Redundant means of communication are in place in case of emergency.
Changes in foundational technologies and demand structures
Risk details and impacts
Actions
Opportunities
Threats
Demand for the Group’s products could shift significantly due to rapid advances or changes in digital and other foundational technologies, or growing expectations for corporations to protect the global environment.
Recognizing that platforms for digital applications will provide a vital foundation for future business expansion as well as a means to provide solutions for issues facing society, through digital transformation projects the UACJ Group is working to digitalize and visualize manufacturing, sales, management, and administrative operations and continues to work toward automation. The Group also focuses on cultivating personnel who can utilize digital tools.
UACJ has its own venture organization to foster innovative ideas from its workplaces. New product launches include “origami,” a foldable work booth, and an aluminum bottle for stockpiled water, called “Mizu no Kakehashi.”
Organizations have been established to create new businesses based on shifts in the demand structure.
The Group is continuously studying and evaluating the comparative advantages of its products and their competitiveness with other materials in various markets, as well as changes in demand on a broader societal level and its progress in developing technologies that can address these shifts in demand.
UACJ is expanding sales of aluminum products into new fields and new domains under the new “Almitas⁺” brand and by conducting PR activities, as well as through sales of the “ALmitas⁺ SMART” line of environmentally conscious products.
Management closely follows and analyzes market trends while collecting relevant data.
Opportunities
Threats
Competition could intensify due to technological innovations, and demand structures could change if aluminum is replaced by alternative materials.
Abrupt changes in the market
Risk details and impacts
Actions
Opportunities
Threats
Although most of the Group’s businesses have set up price agreement systems that reflect market price fluctuations in selling prices as a means to eliminate the impact of medium- to long-term changes in virgin aluminum ingot prices on earnings, consolidated profits and losses posted during a fiscal year could be impacted by fluctuations in the value of inventory assets if aluminum market prices suddenly change over a short span of time or are reflected in selling prices over different periods of time.
Inventory levels are effectively controlled through more accurate sales forecasts.
UACJ has introduced a pricing system that responds flexibly to fluctuations in supply, demand, and prices of raw materials such as scrap, UBCs, and metals used in alloys, and promptly reflects price changes in logistics costs and energy prices.
UACJ flexibly procures funds from diverse sources to minimize the impact of rising interest rates and endeavors to reduce working capital.
Management closely follows and analyzes market trends while collecting relevant data.
Opportunities
Threats
Fluctuating demand for recycled aluminum products in the future could lead to significant changes in prices and supplies of aluminum scrap and used beverage cans.
Threats
If prices of raw materials, particularly metals used in aluminum alloys, as well as logistics and energy prices rise steeply during a short span of time and cause chronic or structural problems in the supply chain, UACJ may not be able to absorb the resultant costs on its own.
Opportunities
Threats
Steep rises in interest rates as well as fluctuations in exchange rates could impact the Group’s international operations as a whole.
2. Main internal risks
Occupational health and safety
Risk details and impacts
Actions
Threats
A workplace accident or disease outbreak could cause harm to employees and damage to physical property.
Occupational health and safety activities are periodically followed and discussed at the management level through the Company’s Health and Safety Committee.
Occupational health and safety policies have been established and related measures are routinely executed.
Health- and safety-related rules have been put in place and training is carried out on a regular basis.
UACJ materiality issues have been identified. Action plans and key performance indicators have been set for activities, interrelationships with materiality have been reorganized, and UACJ will continue activities as a matter of course after April 2024.
Safety and compliance have been designated as basic principles of the UACJ Way, a set of guidelines for all employees, and occupational health and safety are given top priority in business activities.
Management resources are allocated and countermeasures taken to eliminate hazards in the workplace, including fire and explosion risk assessments.
Safety measures using digital technology are promoted.
Threats
A workplace disaster could interfere with the Group’s manufacturing operations.
Environmental accidents
Risk details and impacts
Actions
Threats
The environment could be harmed by an accident such as a leakage of wastewater or hazardous substance, or emissions of pollutants in the air.
Risks of an environmental accident are periodically assessed and discussed at the management level through UACJ’s Environmental Committee.
An environmental policy has been established and and related measures are routinely executed.
Rules for preventing environmental accidents have been put in place and related training is regularly provided.
Product quality assurance
Risk details and impacts
Actions
Threats
The Group could lose the trust of its customers and other stakeholders if its quality assurance activities are carried out fraudulently or improperly, or if its products fall short of quality standards.
Quality assurance is periodically checked and discussed at the management level through the Company’s Quality Committee.
A quality assurance policy has been established and related measures are routinely executed.
Rules for ensuring quality have been put in place and related training is regularly provided.
UACJ materiality issues have been identified. Action plans and key performance indicators have been set for activities, interrelationships with materiality have been reorganized, and UACJ will continue activities as a matter of course after April 2024.
The Group is expanding the use of automated quality verification tests.
Periodic quality inspections are mutually conducted by the Group’s workplaces.
Quality Assurance Guidelines (UACJ version) have been revised based on the results of customized audits by external experts focusing on the reliability of test and inspection data (fiscal 2023).
Threats
Failure to meet quality specifications could inconvenience customers, disrupt the market, and lead to an inability to fulfill supply obligations.
Opportunities
The Group can earn more trust from customers and a stronger reputation in the market by implementing stricter quality controls.
Securing human resources
Risk details and impacts
Actions
Threats
Recruiting talented personnel is increasingly competitive in Japan due to its declining birth rate and aging population.
Management review and deliberation by the Human Resources Development Committee is ongoing.
UACJ materiality issues have been identified. Action plans and key performance indicators have been set for activities, interrelationships with materiality have been reorganized, and UACJ will continue activities as a matter of course after April 2024.
UACJ has set up its company-wide Management Human Resources Development Review Committee to routinely discuss organizational and systematic succession planning as well as plans for grooming new leaders.
UACJ is enhancing training programs for passing down manufacturing skills in the workplace, including its Monozukuri Gakuen program.
Internal recruitment systems are being used to effectively assign employees, and personnel recruitment is regularly carried out through various systems, including programs for hiring local talent, broadening recruitment channels, retaining employees, and promoting the success of women in the workplace.
Opportunities
Threats
Increasingly advanced skills are needed for expanding business internationally.
Opportunities
Threats
The effective deployment of human resources is critical for the success of the Group’s businesses.
Threats
Employee turnover could affect the Group’s ability to retain talented personnel.
Respect for human rights
Risk details and impacts
Actions
Opportunities
Threats
The Group’s promotion of respect for human rights in its workplaces around the world could succeed or fail depending on social and cultural factors in each respective country.
Management review and deliberation by the Compliance Committee is ongoing.
UACJ materiality issues have been identified. Action plans and key performance indicators have been set for activities that are carried out.
UACJ has set up a working group to examine and discuss human rights.
Human rights due diligence based on the UACJ Group Human Rights Policy was conducted at the Nagoya Works, UACJ Australia Pty. Ltd., and Kamakura Industry Co., Ltd.
UACJ has formulated and discloses externally its “Sustainable Procurement Guidelines.”
Threats
Insufficient protection of human rights in the workplace, including those of suppliers, could lead to a loss of trust among stakeholders, regulatory penalties, or lawsuits.
Diversity and equal opportunity
Risk details and impacts
Actions
Threats
If measures for ensuring diversity and equal opportunity in the workplace are inadequate, a loss of trust among stakeholders or regulatory penalties could result.
Management review and deliberation by the Compliance Committee is ongoing (same committee mentioned above in the “Securing human resources” section).
This has been defined as a UACJ materiality item, and activities are continually carried out to accomplish targets of key performance indicators in accordance with action plans.
The Group conducts employee engagement surveys and regularly implements measures to improve workplace conditions.
The Group has formulated a Statement of Dei-Ay Promotion.
The Group promotes its corporate philosophy and organizes discussions about the philosophy with employees around the world to gain their feedback.
UACJ is continually implementing a variety of workplace reforms.
UACJ has set targets for raising the percentage of female managers and newly hired employees (both college graduates and mid-career).
UACJ has set targets for the percentage of foreign nationals among newly hired college graduates.
UACJ actively promotes the hiring of people with disabilities through its special subsidiaries.
UACJ has established a system for rehiring employees who have reached retirement age to allow older people to continue working.
UACJ provides training programs in Japan for employees hired local in other countries by its subsidiaries.
UACJ actively hires mid-career workers and is rehiring former employees (alumni) on a trial basis.
Career counseling and various training programs are offered on an ongoing basis to help employees with career development.
Measures are regularly taken to improve work-life balance for employees.
Opportunities
Threats
Failure to embrace diversity in the workplace could lead to difficulties in retaining and recruiting employees, an inability to attract diverse workers, and a loss of competitiveness due to slow and insufficient responses in times of volatility, uncertainty, complexity and ambiguity. Conversely, fully embracing diversity could revitalize business activities, stimulate future-oriented innovations, and contribute to operational resilience.
Compliance
Risk details and impacts
Actions
Threats
The Group could lose business opportunities if, due to a violation of laws or regulations, it is subject to criminal punishment, penalized byt the government, held responsible for reparations, and loses credibility.
Management review and deliberation by the Compliance Committee is ongoing.
UACJ subcommittees and Group company subcommittees began operating (as places to share information on issues discussed, directed, and reported by the Compliance Committee, as well as to promote the implementation and promotion of such issues within the Group) in April 2023.
All employees are made aware of the top priority given to safety and compliance in the Group’s operations and are offered a wide range of training programs, including training on relevant laws and regulations, routine training on the UACJ Group Code of Conduct, harassment prevention training, and regular training programs for certain job levels.
An internal whistleblower system is in place and made widely accessible to employees.
Legal compliance is regularly verified by internal audits.
Threats
Compliance with newly enacted or revised laws and regulations could incur costs.
Threats
A case involving harassment could damage the Group’s credibility.
Group-wide corporate governance
Risk details and impacts
Actions
Opportunities
Threats
The Group’s collective capabilities are affected by its ability to integrally manage all of its workplaces around the world and fully execute policies and strategies on a group-wide basis.
The Group’s corporate philosophy is made known to all employees.
Internal controls are continually strengthened across the Group.
The Group’s employees participate in regularly held discussions on the corporate philosophy with UACJ’s president, executive officers, and division heads.
Internal control audits and operational audits are conducted on a routine basis.
The preparation of UACJ’s internal rules and regulations is ongoing.
Information security
Risk details and impacts
Actions
Threats
The Group could be responsible for reparations and lose credibility and business opportunities if information in its possession is leaked or stolen, such as customer data, personal information, trade secrets, and technological information.
The Group strictly manages information based on its own basic policy on information security, information management rules, electronic information rules, and technical data rules.
UACJ carries out assessments and measures for improving all aspects of security in accordance with cyber security management guidelines issued by Japan’s Ministry of Economy, Trade and Industry, and the Information-technology Promotion Agency, Japan.
UACJ has expanded its use of external surveillance systems and internal security systems, and has obtained cyber insurance coverage.
UACJ has taken steps to comply with revisions to Japan’s personal information protection law.
Training on information security is provided to employees.
Threats
A cyber attack on the Group could cause a suspension of operations due to a stoppage of information systems, and costs for restoring systems could be incurred.
Threats
Laws related to economic security guarantees are raising requirements for strictly managing information.
Funds procurement
Risk details and impacts
Actions
Threats
Securing funds could be subject to constraints or higher costs due to changes in business and credit conditions.
The Group has diversified its methods for procuring funds, including loans through committed credit lines with banks, direct procurement through the issuance of commercial paper, and asset finance.
Measures are taken to increase profitability and improve capital efficiency in order to boost cash flow.
3. Risks related to accounting-based valuation and estimates
Impairment of non-financial assets
Regarding the impairment of non-financial assets such as property, plant and equipment, goodwill, and intangible assets recorded in the Group's consolidated statement of financial position, if the recoverable amount falls below the carrying amount due to a decline in profitability or changes in fair value, an impairment loss may be incurred. This could have a significant impact on the Group's results of operations and financial position.
Recoverability of deferred tax assets
The Company calculates the amount of deferred tax assets it can presumably recover based on reasonable estimates of future taxable income. If market conditions or its operating environment worsen significantly in the future, however, its taxable income could not only differ substantially from such estimates but also result in a reversal to deferred tax liabilities. A substantial reversal could significantly impact the Company’s consolidated financial results.
The risks described herein could significantly impact the UACJ Group’s financial results should they materialize, but not all such risks are listed. Other risks unforeseen at the time of preparing this report could also materialize and significantly affect financial results. Furthermore, while the Group has established a risk management system and prepared countermeasures for the risks described herein, it might not be able to achieve the intended outcome of the countermeasures in the future. Unless otherwise stated, the forward-looking statements herein are based on assumptions as of the end of the Company’s fiscal year.
