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Investor Relations

Corporate Information Business and Other Risks Corporate Information Business and Other Risks

Described below are the main factors identified as posing material risks for the financial state, business performance, and cash flow of the OKI Group (i.e., the Company and its consolidated subsidiaries).

Note that this list is not intended to be exhaustive. The OKI Group recognizes these and other risks and will strive to minimize their impact.

Note: Figures included in the text below are for the fiscal year ended March 31, 2019.

1. Risks related to global political and economic trends

Demand for the OKI Group's products is affected by political and economic conditions in the various regions where the OKI Group sells its products, both inside and outside Japan.

During this consolidated fiscal year, OKI Group sales in overseas markets totaled 99.6 billion yen, or 22.6% of consolidated net sales. These markets include regions in the Americas, Europe, Asia, and elsewhere. Economic downturns and accompanying decline in demand, changes in import regulations and other regulations affecting products, and other factors may impact the OKI Group's business performance and financial status.

With regard to overseas sales in each business, in addition to periodically monitoring the status of sales and other aspects, the Group recognizes the need to strive to identify as quickly as possible the consequences of any political or economic changes in specific overseas markets and to respond appropriately. This involves various measures, including measures to ensure sales are not excessively concentrated in specific regions.

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2. Risks related to country risk

The OKI Group has 39 subsidiaries in overseas and operates numerous sales and production facilities. The main production and manufacturing facilities are located in China, Thailand, and Brazil; major sales facilities are located in the United States and European states, including the United Kingdom. The Group recognizes that these countries pose the risk of coup d'état, dispute, revolution, or social disorder caused by revolt or terrorist incidents, leading to the seizure or expropriation of OKI Group's assets or harm to its personnel or property.

The Group understands the need for appropriate measures if country risks reach a certain point. These measures include relocating the functions of related facilities or withdrawing from a country, based on a consideration of costs and benefits, or considering and implementing various measures as a hedge against such risks.

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3. Risks related to exchange rates

The OKI Group is exposed to the risks of exchange rate fluctuations caused by political and economic conditions in Japan and around the world, which can negatively affect the OKI Group's financial state, business performance, and cash flow.

In response, the Group implements risk hedging through measures including forward foreign exchange contracts and offsets that address imbalances in positions held of foreign currency assets and liabilities. The Group also refrains from speculative trading. These measures appear likely to limit the impact of exchange rates on the OKI Group.

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4. Risks related to fluctuations in financial markets and interest rates

The OKI Group's interest-bearing debts are subject to fluctuations in financial markets and interest rates. Its total balance of long-term and short-term debts stood at 78.6 billion yen. Its debt/equity ratio was 0.8. Interest paid during this consolidated fiscal year was 1.6 billion yen. Developments such as rising interest rates on funds borrowed or restriction on methods of raising funds in response to fluctuations in financial markets or in the OKI Group's credit rating may negatively impact the OKI Group's financial state, business performance, and cash flow.

With regard to debts, alongside measures like interest rate swap transactions, the Group strives to maintain sound debt levels. The impact of rising interest rates on the OKI Group appears extremely limited.

The OKI Group holds listed stocks as part of its investment portfolio. In the event of a decline in the value of these holdings due to a rapid decline in stock markets, revaluation losses or decreased revaluation gains may affect the OKI Group's business performance and financial status.

For listed stock in its strategic shareholdings, the OKI Group makes comprehensive judgments each year concerning the suitability of holdings, by taking both quantitative and qualitative factors into consideration for each stock.

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5. Risks related to laws and regulations

In the various regions in which it does business, both inside and outside Japan, the OKI Group is naturally subject to various laws and regulations, including business and investment permits and import and export regulations implemented for purposes related to national security or economic sanctions. It is also subject to product laws, regulations, and technical standards; environmental laws and regulations; and laws concerning subcontracting, construction, and occupational health and safety. Any violation of such laws and regulations may have negative consequences on the business performance and financial status of the OKI Group due to loss of customer trust and the societal mandate.

The OKI Group promotes compliance with all laws and regulations that apply to its businesses, including those named above. Compliance efforts are implemented through an integrated Groupwide structure that includes the designation of sections responsible for managing compliance, efforts to promote employee training, and efforts to monitor the state of compliance, thereby ensuring thorough compliance within the Group.

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6. Risks related to market trends, products, and services in specific businesses

The OKI Group divides its business segments into the following: (i) Information and Communications Technology (ICT), (ii) Mechatronics Systems, (iii) Printers, and (iv) Electronics Manufacturing Services (EMS). The Group undertakes its business activities in accordance with comprehensive strategies drafted for domestic and international markets centered on the products and services handled in each segment. The current conditions in each business are summarized below.

(i) ICT Business

The net sales of the OKI Group's ICT business totaled 184.3 billion yen (accounting for 41.7% of consolidated net sales). Operating income stood at 14.7 billion yen. The business domains for this segment are wide ranging and include various social infrastructure systems, systems for telecommunications carriers, systems related to financial and logistics businesses, and medical related systems.

In recent years in particular, the OKI Group has recognized the need to focus on the domains of its ICT business and to achieve sustained growth in this area as major topics in light of society's rising expectations for and rapid progress of Internet of things (IoT) technologies and the approaching practical launch of 5G services.

(ii) Mechatronics Systems Business

Net sales in the OKI Group's Mechatronics Systems business totaled 82.7 billion yen (accounting for 18.7% of consolidated net sales); operating income stood at 100 million yen. The business domains of this segment are wide ranging and include ATMs, ATM monitoring and operation services, cash handling equipment, ticket reservation and issuing terminals, and check-in terminals.

In recent years, this business segment has experienced trends toward cashless payments for purchases and services, structural reforms in the banking industry, and increasing opportunities to use e-money and two-dimensional codes in industries such as rail and air transportation. The OKI Group recognizes as key issues the need to adapt to these environmental changes in the Mechatronics Systems business and enhance its earnings capabilities.

(iii) Printers Business

The net sales of the OKI Group's Printers business totaled 102.6 billion yen (accounting for 23.2% of consolidated net sales); operating income stood at 5.7 billion yen. The business domains of this segment include dot impact printers, color/monochrome LED printers/MFPs and large-scale inkjet printers and others.

Demand for printing functions has changed profoundly, particularly with the growing trend toward paperless. The OKI Group recognizes as an important global topic in its Printers business the need to grow market share and to enhance printer functions to enable them to meet changing market needs and new needs in markets such as labels, tickets, and apparel that require printing functions, in addition to printers and other devices for the office market, where basic demand for printing functions persists.

(iv) EMS Business

The net sales of the OKI Group's EMS business totaled 65.2 billion yen (accounting for 14.8% of consolidated net sales); operating income stood at 3.7 billion yen. The business domains of this segment include the design of various devices, the manufacture of printed circuit boards and other key components, and the manufacture, assembly, and inspection of equipment as consigned manufacturing services.

The Group recognizes as a key future issue its need to grow sales by developing new high-end markets in areas such as healthcare, aviation and aerospace, and automotive electronics—markets that have experienced growth in recent years—in addition to the traditional ICT, measurement, and industrial fields.

Given these conditions, we can expect negative repercussions for the business performance and financial status of the OKI Group if, in the four business segments above, it cannot keep up with market trends and deliver product designs and services that meet customer needs or if it encounters delays or other delivery problems due to material procurement shortage caused by external factors such as natural disasters, changes in supplier business policies, or supplier bankruptcy.

The OKI Group is striving to ensure business continuity and growth based on an unremitting focus on accelerating the development of related products, reallocating resources to growth areas, and intensifying business deployment in existing markets.

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7. Risks related to major patent-related contracts and technological support contracts

The OKI Group has concluded patent-related contracts and technological support contracts with multiple firms. Failure to properly execute these contracts, unequitable terms or conditions, or failure to promptly utilize the relevant patents or technical assistance may have negative impact on related businesses within the OKI Group.

The OKI Group's products and services effectively utilize the OKI Group's own patents and technologies, as reflected in their performance across a wide range of aspects.

Among other activities, the specialized intellectual property (IP) and legal sections undertake a careful review of such contracts.

The OKI Group strives to control, as much as possible, the impact of risks related to contracts concerning patents or technological assistance.

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8. Quality risks

While the OKI Group strives to ensure thorough control of the quality of the products and services it provides, in the event of quality defects, it may be subject to costs related to the processing of recalls or compensation to customers.

In response, in line with the OKI Group's quality philosophy, the Group strives to improve quality in business processes from product planning through manufacture, maintenance, and operations by assigning quality responsibility and authority to each business and maintaining a quality management system tailored to the characteristics of each individual business.

With regard to safety in particular, going beyond mere legal and regulatory compliance, it strives to secure safety and peace of mind in accordance with its Product Safety Basic Policy.

For this reason, we believe the impact of quality-related risks for the OKI Group is limited.

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9. Risks related to mergers and acquisitions (M&As) and alliances

The OKI Group pursues a wide range of efforts, including alliances with other companies, business acquisitions, and mergers of affiliate companies in areas such as research and development, manufacturing, and sales.

Nevertheless, the OKI Group's business performance and financial status may be negatively affected by failure to maintain the anticipated ties to its counterparties in such arrangements with regard to matters business strategies, the development of products and technologies, and fundraising, or by unequitable contract terms or conditions, unilateral cancellation by a counterparty, or breach of contract by a counterparty.

Before commencing transactions with a counterparty, the Group undertakes credit assessments of the party and uses the services of consultants for the arrangements in question. Contracts are thoroughly reviewed by specialized internal sections with expertise in intellectual property (IP) and legal affairs to control risks related to M&As and alliances.

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10. Risks related to environmental protection

In its production activities, certain OKI Group plants use and emit chemicals and other substances that may lead to air, water, soil, or other pollution. The Group also generates CO2 emissions indirectly through its use of electricity and other energy at its plants and offices and through the use of its products by end users. Its suppliers use and emit chemical substances during the manufacture of components and other products and emit CO2.

The Group complies with all applicable laws and regulations, related rules in business activities that may affect the environment. Nevertheless, the risk remains that a natural disaster or other event affecting the Group or its trading partners may result in significant environmental pollution. In addition, amid rising environmental awareness worldwide, customers and other stakeholders are increasingly demanding environmental consideration throughout the supply chain. All these conditions pose potential liabilities, compensation risks, and other damages or lost sales opportunities should pollution incidents arise or if the Group fails to meet environmental requirements.

To reduce such risks, the OKI Group has advanced several efforts, including obtaining integrated certification under ISO 14001; establishing a specialized section to promote Groupwide environmental management activities; complying with environmental laws, regulations, and other rules; taking action to reduce its environmental footprint; monitoring environmental data; and establishing plans for emergency responses to disasters. It also reports periodically to management on the status of these efforts. The Group advances management activities in cooperation with Group member companies and suppliers and has established an environmental vision that sets long-term numerical targets for 2050, on the basis of which it is seeking to strengthen environmental management activities. Given these and other activities, we believe the environmental risks to which the OKI Group is exposed are relatively limited.

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