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Risk Management

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Among business- and management-related matters described in this securities report (originally submitted on June 30, 2021), 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

The COVID-19 pandemic and future epidemics

Risk details and impacts Actions
Opportunities Threats Product demand could change according to shifts in consumer lifestyles depending on the circumstances of the ongoing global COVID-19 pandemic.
  • Infection control measures for employees are being thoroughly implemented.
  • All workplaces are implementing business continuity planning in preparation for an outbreak of infections.
  • Costs are being controlled and committed credit lines have been established to secure funds if necessary.
  Threats Operations could be delayed, interrupted, or suspended in the event of an outbreak of infections among employees or a request from the government or other organization to suspend operations due to the COVID-19 situation.

Climate change and other changes in the global environment

Risk details and impacts Actions
  Threats The Group could lose public trust and business opportunities if its efforts to combat the impact of global warming and climate change through reductions in greenhouse gas (including CO2) emissions and other initiatives are deemed to be insufficient.
  • UACJ has specified relevant materiality issues with related action plans and key performance indicators.
  • Reducing CO2 emissions has been designated as one of four ways the Group can make contributions in its UACJ Vision 2030 long-term management roadmap.
  • Contributing to solving issues related to climate change has been designated as a major policy in the Company’s most recent mid-term management plan in recognition of the seriousness of this issue.
  • A committee tasked with initiating climate change countermeasures was set up in April 2021 to provide a venue for management to examine and discuss the Group’s solutions.
  • The Group is continuing its efforts to facilitate aluminum product recycling, reduce CO2 emissions from manufacturing, and save energy.
Opportunities   There are growing opportunities to help solve environmental issues by providing products and services that make effective use of aluminum’s beneficial properties as a metal, including its light weight, thermal conductivity, and recyclability.

Damage from extreme weather, major earthquakes, and other disasters

Risk details and impacts Actions
  Threats The safety of the Group’s employees and stable operations of its facilities in various regions of the world could be affected by natural disasters, including earthquakes, tsunamis, typhoons, and floods, as well as by man-made disasters, such as terrorism.
  • Business continuity management is periodically monitored and discussed by the CSR Committee.
  • All workplaces routinely carry out emergency drills and other activities to prepare for a disaster and mitigate its damage.
  • Business continuity plans are in place at all workplaces as a means to enhance business continuity management.
  Threats The manufacturing and business activities of the Group as well as its customers and suppliers could be suspended as a result of a natural or man-made disaster.

Changes in government policies and economic trends

Risk details and impacts Actions
  Threats Procuring raw materials could become difficult and procurement costs could rise due to sudden changes in government policies, economic conditions, or regulations in the countries in which the Group manufactures and sells products or its suppliers are based, or due to geopolitical tensions, such as a trade war between the United States and China.
  • Measures are continuously implemented to increase the Group’s ability to effectively respond to changes in the operating environment, including structural reforms for reducing the break-even point.
  • The Group optimally designates manufacturing facilities to meet demand while leveraging its global supply network covering Japan, the US, Thailand, China, and other countries.
  • The Group has diversified its sources of aluminum and other raw materials.
Opportunities Threats Business opportunities could change according to fluctuations in demand caused by shifts in government policies or economic trends.
  Threats Costs needed to respond to the changes described above could be incurred and increase.

Technological advances and changes in demand

Risk details and impacts Actions
Opportunities Threats The Group’s competitiveness and ability to grow will be affected by rapid changes and advances in digital and other technologies as well as shifts in environmental and societal trends.
  • The Company has placed priority on improving beneficial technologies and digital platforms in its most recent mid-term management plan.
  • The Company’s Digital Innovation Department was set up in April 2020 to promote a digital transformation throughout the Group’s operations.
  • The Company’s Mobility Technology Center was established in October 2020 to develop applications for aluminum in the automobile industry.
  • The Company is developing its own venture organization to drive new business development in collaboration with startups and other organizations outside the Group.
  • The Group is closely following and studying technological and market-related trends.
Opportunities   Products and services that make use of aluminum’s beneficial properties are increasingly expected as customers’ needs become more diverse amid shifts in technological and societal trends.

Market volatility

Risk details and impacts Actions
Opportunities Threats Procurement costs could change due to fluctuations in market prices of aluminum, metal additives, and various secondary materials
(the Company has a system in place to pass on changes in the market price of aluminum to customers based on contract conditions concluded with them in advance, but it could record a gain or loss on the valuation of its inventory assets if the price rapidly changes over the short term).
  • The Group will continue and expand its practice of passing on changes in the market price of aluminum to customers through contract conditions.
  • The Group will continue its initiatives to reduce dependence on fuel and save energy.
  • Foreign exchange contracts, fixed interest rates, and other methods are regularly utilized to reduce the impact of market fluctuations.
Opportunities Threats Manufacturing and processing costs could change according to fluctuations in energy prices.
Opportunities Threats Changes in exchange rates and interest rates could impact financial results.

2. Main internal risks

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.
  • UACJ has specified relevant materiality issues with related action plans and key performance indicators.
  • Quality assurance is periodically checked and discussed at the management level through the Company’s Quality Committee.
  • Quality control plans and measures are routinely executed.
  • Compliance training is regularly carried out.
  • The Group is expanding the use of automated quality verification tests.
  • Periodic quality inspections are mutually conducted by the Group’s workplaces.
  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.

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.
  • 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.
  • UACJ has specified relevant materiality issues with related action plans and key performance indicators.
  • Occupational health and safety activities are periodically followed and discussed at the management level through the Company’s Health and Safety Committee.
  • Health- and safety-related rules have been put in place and training is carried out on a regular basis.
  • Management resources are allocated and countermeasures taken to eliminate hazards in the workplace, including fire and explosion risk assessments.
  Threats A workplace disaster could interfere with the Group’s manufacturing operations.

Development and deployment of strategic human resources

Risk details and impacts Actions
  Threats Recruiting talented employees in Japan is increasingly difficult due to the country’s rapidly aging population.
  • UACJ has specified relevant materiality issues with related action plans and key performance indicators.
  • The Group carries out succession planning to systematically identify and groom new leaders.
  • The Group is promoting diversity and inclusion to bring out the best of its diverse workforce.
  • Targeted personnel are provided with human resources training and development programs.
  • Working conditions are being improved to raise employee engagement and satisfaction.
  • Personnel are being effectively deployed through internal recruitment systems.
  • Training programs for passing down manufacturing skills in the workplace, such as the Company’s Monozukuri Gakuen program, are being set up and expanded.
Opportunities Threats Requirements of employees and necessary skills are changing with the Group’s global expansion.
Opportunities Threats The effective deployment of human resources is critical for success in the Group’s operations.

Compliance

Risk details and impacts Actions
  Threats The Group could be subject to penalties and fines if it fails to fully comply with laws and environmental regulations.
  • Safety and compliance have been designated as basic principles of the UACJ Way, which is an integral part of the Company’s corporate philosophy.
  • The Group Code of Conduct is promoted on a group-wide basis.
  • UACJ has specified materiality issues concerning human rights and created related action plans and key performance indicators.
  • The Company has begun examining the implementation of human rights due diligence.
  • Measures to strengthen internal controls in the Group are being led by committees in charge of health and safety, quality, the environment, and CSR.
  • Activities for ensuring compliance with all relevant laws and regulations are carried out on a regular basis.
  • Requests are made to suppliers based on the Group’s CSR Procurement Guidelines.
  Threats The Group could lose the trust of its stakeholders and face a public backlash if it fails to meet their expectations regarding human rights and other issues.
  Threats Compliance with newly enacted or revised laws and regulations could incur costs.

Returns on strategic investments

Risk details and impacts Actions
Opportunities Threats The achievement of the Group’s business objectives depends on the returns on its investments in increased production capacity to meet rising demand from growing markets in Asia and North America, specifically for can stock and auto parts.
  • The Group has been securing returns on investments ahead of schedule by capturing rising demand in Asia and North America, optimizing its product mix, and balancing regional customer structures.
  • The Company carefully examines its investments, has expanded the department that analyzes investments in the Finance Division, and closely monitors the outcomes of its investments made in Thailand, the US, and Japan.
  Threats Business objectives may not be achieved if market conditions change or the business environment worsens more than previously expected when investments were originally planned.

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.
  • Measures to strengthen internal controls in the Group are being led by committees in charge of health and safety, quality, the environment, and CSR.
  • UACJ’s president holds meetings with group employees to discuss the corporate philosophy.
  • A department tasked with fostering a new corporate culture was set up in April 2020.
  • Internal control audits and operational audits are conducted on a routine basis.

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 information management rules and electronic information security rules.
  • The Group carries out assessments and measures for improving all aspects of security in accordance with cyber security management guidelines.
  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.

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.
  • Withdrawal from non-profitable and non-core businesses is regularly discussed and examined by management.

3. Risks related to accounting-based valuation and estimates

Impairment of fixed assets

If market conditions or the Group’s operating environment worsen significantly in the future, the market value of fixed assets it owns could decline markedly and the returns on those assets could decrease as a result. In such cases, the Company would have to record an impairment loss on the fixed assets in accordance with relevant accounting standards. Its consolidated financial results could be impacted if the impairment loss is substantial.

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 on March 31, 2021.

Some of the information posted on our website contains references to future results. The posting of such information does not constitute a guarantee of future results, and the information is subject to risk and uncertainty. Please be aware of the possibility of different future results caused by changes in the environment or similar factors.