Risk Management Framework
Risk Management System
The Group holds Risk, Compliance, and Sustainability Committee on a quarterly basis to discuss issues and measures related to the advancement of risk management across the Company and strives to identify, evaluate, manage, and control various risks so as to ensure the continuation and stable development of the business. When a legal decision is required, we consult with our legal advisors in a timely manner to avoid risks before they materialize.
Risks to Business, etc.
The Group recognizes the following items as major factors that could potentially pose risks to the development of its business. Recognizing the possibility of these risks occurring, we are working to avoid and prevent them.
The forward-looking statements described below are based on the judgment of the Group in accordance with information available at the time of writing. Actual results may differ from these statements.
The likelihood and impact of risks that could affect the Group are assessed using the following criteria.
Likelihood of occurrence
| Level | Definition | Frequency |
|---|---|---|
| 4 | Extremely likely | There is an extremely high possibility that the risk event will occur at least once every three years |
| 3 | Likely | There is a high possibility that the risk event will occur at least once every five years |
| 2 | Rather unlikely | The possibility of the risk event occurring is low, but there is still a possibility that it could occur once every ten years |
| 1 | Unlikely | The possibility of the risk event occurring exists, but it has only occurred rarely in the past, and/or the possibility of it occurring in the future is extremely low |
Impact (scale of damage)
| Level | Definition | Degree of impact |
|---|---|---|
| 4 | Extremely high | Financial impact of more than 500 million yen, or an extremely high reputational impact |
| 3 | High | Financial impact of 200–500 million yen, or a high reputational impact |
| 2 | Medium | Financial impact of 100–200 million yen, or a mid-level reputational impact |
| 1 | Low | Financial impact of less than 100 million yen, or a minor reputational impact |
Risks from large-scale disasters
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 4 | 4 | In the event of natural disasters such as major earthquakes or typhoons, or accidents such as fires, it is possible that plant closures and suspended operation may occur at our production bases and suppliers. If factories remain closed or suspended for extended periods of time, there is a possibility of significant impacts on the Group's financial position and business performance. | The Group has formulated disaster response measures and business continuity plans (BCPs) for its production plants and major business bases in the event of natural disasters such as earthquakes and floods caused by climate change. We are also working to improve our internal systems, such as by introducing a safety confirmation system that allows us to quickly confirm the safety of our employees, as well as holding regular disaster drills and other measures to continuously strengthen our emergency response capabilities and raise awareness. |
Risks of large-scale infectious diseases
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 4 | The outbreak of a large-scale infectious disease such as the novel coronavirus (COVID-19) may cause a disruption or delay in the business activities of the Group due to infection of the Group's officers and employees or their collaborators, which could in turn affect the business activities of the Group. In addition, with regard to domestic sales, there is a risk that the recovery of inbound demand, which includes Alinamin, would be delayed due to the further postponement of the recovery of tourists visiting Japan. |
The Group's factories and manufacturing subcontractors consistently maintain the necessary inventory levels to ensure a stable supply of products, and have prepared and implemented a program based on a predetermined business continuity plan (BCP). In addition, Corporate Management is working with the Health and Safety Committee to collect accurate information on infectious diseases and other matters, and is continuing its efforts to ensure the safety of employees and minimize the impact on business activities. |
Risks to supply chains (stable supply)
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 3 | The Group places great importance on the stable supply of its products. However, in the event of a natural disaster such as an earthquake or typhoon, pandemic, fire, system failure, terrorism, violation of the PMD Act, or deterioration of the business condition of an external contractor, which causes a stoppage in the functions of a factory or external contractor or a suspension or delay in the supply of raw materials, there is a possibility that the Group's financial position and business performance may be affected. | In response, the Group has formulated disaster response measures and business continuity plans (BCPs) for its production plants and major business bases in the event of natural disasters such as earthquakes and floods caused by climate change. In addition, we diversify risk by manufacturing some products and raw materials at multiple locations or purchasing them from multiple suppliers. Not only do we work with our manufacturing and procurement partners to establish a supply priority list and take other measures to prepare for disasters and other emergencies, we also regularly survey the business conditions of each company, and monitor and manage changes in business relationships, etc., in order to take measures against the risk of a stable supply of products. |
Risks related to sudden changes in consumer needs
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 4 | Although the Group deals in products for general consumers, there is a possibility that development costs, sales promotion costs, advertising costs, and other expenses may increase due to factors such as intensifying competition with competitors including related fields, a decline in price negotiation power due to the merging of business partners, and the diversification of media used by consumers. Under these circumstances, unexpectedly high consumer needs or changes to the competitive environment can depress net sales, which could have a negative impact on the financial position and business performance of the Group. | Product Strategy Meeting convenes once a month to discuss and decide on comprehensive strategies for the products we handle, and we aim to continuously develop new products that reflect consumer demands in a timely manner. In addition, we are working to formulate strategies that accurately reflect changes in the business environment by reviewing the sales appeal and expression of major existing brands to reflect changes in consumer needs and also reviewing brand strategies such as measures to counter the competitive environment on a regular basis. |
Risks related to developing our business overseas
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 4 | The Alinamin Pharmaceutical Group is developing its business overseas. This international expansion carries various risks that could have an impact on the Group’s financial performance and the future development of our business. For example, the target countries could suffer from political instability and the deterioration of public safety due to terrorism, political upheavals, coup d'état, or conflicts, while strikes and boycotts can lead to labor disputes. There can also be problems with infrastructure, such as power, water, and telecommunications, outbreaks of infectious diseases, unforeseen changes in laws and regulations related to taxation and foreign exchange, and differences in culture and business practices that could damage relationships with business partners. | When developing our business overseas, the Group conducts thorough research into factors such as business profitability, relevant laws and regulations, and political and economic conditions, making final decisions and implementing risk management after discussing the balance between growth opportunities and residual risks. Furthermore, we are working to reduce risk by collecting information from employees we have assigned to the area, the relevant authorities and others, to enable us to respond as effectively and quickly as possible. |
Information management risks
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 2 | 4 | The Alinamin Pharmaceutical Group possesses important business information, as well as personal information and business partners and others’ sensitive information that it came into possession over the course of carrying out its business activities. Cyber attacks, unauthorized access, infection with computer viruses and other issues can cause significant problems, such as leak, destruction or alteration of important information or stoppage of internal systems. Incidents such as these can have a significant impact on business performance due to the loss of social trust in the Company and liability claims for damages. | In order to mitigate these risks, the Group is implementing the following measures to counter the cyber security threats that are getting diverse and sophisticated year by year.
|
Risks related to sales suspensions, product recalls, etc.
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 1 | 3 | In addition to pharmaceuticals and quasi-drugs, the Group’s product lineup also includes cosmetics and food. Although these products are manufactured in-house or by contract manufacturers operating under strict quality controls, there is a possibility that the Group's business performance could be significantly impacted by product recalls, sales suspensions, administrative penalties, or damage to our social trust resulting from the occurrence of a major quality incident or adverse event, or if there are any revisions to the laws and regulations with which contract manufacturers must comply. In addition, if the initial response to a quality defect or adverse event is not handled correctly and this results in significant damage to the health or assets of consumers, there is a possibility that this could have a negative impact on the financial position and business performance of the Group due to claims for compensation or a loss of trust. |
The global manufacturing and distribution of the Group's products complies with pharmaceutical-related laws and regulations, including Good Manufacturing Practice (GMP) (standard for the management of manufacture and quality of pharmaceuticals, etc.), Good Distribution Practice (GDP) (standard related to the distribution of pharmaceuticals, etc.), and the guidelines of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH). The Group has been inspected by and obtained approval from the competent authorities, such as Japan’s Ministry of Health, Labour and Welfare (including the PMDA and pharmaceutical affairs divisions of prefectural governments) and the Taiwan Food and Drug Administration (TFDA). The Group conducts regular audits of its manufacturing facilities and raw material suppliers to confirm that there are no major quality issues or violations of laws and regulations. In addition, manufacturing facilities for our global products are also subject to audits by our overseas partners, and we have established high-level equipment design standards and quality assurance systems that meet strict global quality standards. When an event occurs that affects product quality, we mitigate the risk by identifying the scope of the impact, investigating the cause of the event, and implementing corrective and preventive measures. In addition, safety management departments carry out safety monitoring activities to ensure that safety information including adverse events they obtained is collected and evaluated appropriately, and that all necessary safety measures are taken as a result of such evaluations. Furthermore, we strive to maintain the quality, efficacy and safety of our products by having safety management departments and quality assurance departments coordinate with each other while sharing quality and safety information. |
Risk related to suspensions of licenses and permits and other legal restrictions
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 1 | 4 | The Alinamin Pharmaceutical Group is subject to regulations such as the PMD Act (Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices), the PMD Act Enforcement Order, the PMD Act Enforcement Regulations, and ministerial ordinances related to these laws (GQP: Good Quality Practice Standards for the Quality Control of Pharmaceuticals, etc., GVP: Good Vigilance Practice Standards for Post-Marketing Safety Management of Pharmaceuticals, etc.), etc. We have obtained licenses and permits for the manufacture, sale, and wholesale distribution of such products. In the event of changes to related laws and regulations, there is a risk that the Group's financial position and business performance may be affected due to unintended violations of laws and regulations, resulting in the suspension of business or the revocation of licenses and permits. In addition, as the Group’s products are also sold in Taiwan and other parts of Asia, there is a possibility that changes in export regulations could cause fluctuations in sales in these overseas markets. |
The Group executes its operations using regulations and operational procedures that comply with the PMD Act and other related laws and regulations, and regularly conducts self-inspections and audits to prevent and correct any violations. In the event of revisions to related laws and regulations or notifications, etc., each responsible department obtains the latest information as needed and promptly incorporates it into related operations, ensuring thorough compliance with the law. |
Risks related to the recruitment of human resources
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 1 | 4 | With the declining birthrate and aging population in Japan, it is expected that the working population will steadily decrease in the future. At the same time, advances in information technology, globalization, and work style reform are also having a significant impact on the employment environment. In order to achieve our mission and vision, the Group needs to recruit a diverse range of talented people who can play an active role in various fields. Shortages of manpower, resulting from insufficient recruitment falling behind the plan due to changes in the recruitment environment, and inadequate development of the human resources that have been recruited, can cause business activities to stagnate, which could have an impact on the Group’s business performance. |
The Group is actively working to create comfortable working environment for our employees by developing the human resources system to accommodate diverse work styles, fostering a corporate culture that embraces diverse values, and improving the working environment. In addition, we are systematically developing our human resources to ensure that we have the staff we need to support the expansion of our business in the future. |
Reputational risks
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 2 | 4 | Malicious rumors about the Group that are created and spread through media reports or Internet postings, etc., could damage the Group's brand image and erode social trust, which could in turn affect the Group's financial position and business performance. | By continuously monitoring postings on the Internet, etc., the Group is making efforts to detect problematic content at an early stage. If we discover improper posts or other content that could affect our business, we will respond carefully and appropriately based on our crisis management rules. In addition, in order to prevent inappropriate use of social media sites and services by our officers, employees and other workers, we regularly provide training in accordance with our rules for the use of information systems. |
Risks related to major lawsuits
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 2 | 4 | The Alinamin Pharmaceutical Group develops its business both in Japan and overseas, raising the possibility that the Group could be subject to litigation under the legal systems of different countries. At present, no lawsuits or other legal actions have been filed that would have a significant impact on the Group. However, if a serious lawsuit were to be filed in the future, resulting in an unfavorable judgment for the Group, it could lead to a decline in brand image and social trust, which could in turn affect the Group's financial position and business performance. In addition, if another company infringes on the Group's intellectual property rights, expected earnings could be lost, and conversely, if the Group's own products, etc. infringe on another company's intellectual property rights, there is a possibility that the manufacture and sale of the products could be suspended and that compensation for damages could be claimed. | In addition to ensuring strict compliance with all laws and regulations related to our products and business, the Group endeavors to prevent litigation and other disputes by clearly stating the terms and conditions of contracts, consulting with counterparties, and acquiring and using intellectual property rights in an appropriate manner. Furthermore, we work in cooperation with the legal departments of our local affiliates in the countries and regions where we operate to ascertain the situations of each country, and we have established a mechanism for responding quickly and appropriately to litigation and other matters, when necessary and in cooperation with lawyers, consultants and other specialist organizations. |
Risks related to exchange rate fluctuations
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 4 | 1 | The Alinamin Pharmaceutical Group also operates businesses in countries and regions across Asia. As financial statements prepared in local currencies at overseas subsidiaries are converted to yen when preparing consolidated financial statements, fluctuations in exchange rates may affect the financial position and business performance of the Group. In addition, the fact that we export some of our raw materials and products exposes us to the effects of exchange rate fluctuations. | At present, the impact of items in the financial statements of overseas subsidiaries on the consolidated financial statements as a whole is limited. However, we will continue to monitor foreign exchange trends and work to reduce the risk of exchange rate fluctuations through hedging and other measures. |
Risks related to business acquisitions and partnerships
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 1 | 2 | The Group pursues aggressive M&As and business alliances, both in Japan and overseas, with the aim of strengthening its product lineup, securing sales and manufacturing bases (including securing the necessary approvals for products subject to pharmaceutical regulations), and acquiring sales capabilities and business execution know-how. If, in the future, for some reason, we are forced to terminate a business partnership with a client with whom we have already signed a contract through another company, there is a possibility that this could affect our business performance and financial position. In addition, because there may be unpredictable and uncertain factors involved in M&As and business alliances, there is a possibility that the results originally intended may not be achieved, or that changes to business strategies may become necessary due to events or changes in the environment that were neither foreseen nor anticipated. When acquiring a company, a considerable amount of goodwill and intangible assets are often recorded, but there is a risk of impairment losses accruing if these assets fail to generate the expected cash flow. All of these factors could negatively affect the Group's financial position and business performance. |
When undertaking M&As or forming business alliances, we strive to carry out thorough due diligence (acquisition audits) to ensure that we collect all the pertinent information. Many of the M&As carried out by the Group expand the business through horizontal integration, so the products of the acquired business become part of our existing product lineup. In addition, when actually making investments, we set appropriate investment budgets in consideration of the scale of our Group's business. We therefore expect the impact of the risk of unexpected fluctuations in business performance to be limited relative to the overall picture. On the other hand, if the acquired growth opportunities are actualized as planned, the positive impact on business performance will be significant. We make a final decision on implementation after fully discussing the balance between growth opportunities and residual risks, and then implement risk management. With regard to our alliance partners, we have established a robust governance system with multiple functions and layers, and we are working to minimize the impact on our business performance by closely monitoring risks and discussing solutions, and taking the necessary measures. |
Risks related to compliance
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 2 | As it conducts its business, the Group is subject to various legal regulations, such as pharmaceutical regulations, product liability, and antitrust laws, as well as guidelines such as GMP and GQP. In addition, the Group has cooperative relationships with many agents, suppliers, wholesalers and other third parties, and the Group's business activities are affected by the operations of these third parties. The Group has set up a Risk, Compliance and Sustainability Committee, developed a mechanism to promote compliance, and monitors business activities of the Group and third parties involved with the Group to ensure compliance with laws, regulations and internal rules. Despite these measures, if any Group employees or third parties involved with the Group violate these laws, regulations, etc., or act in a way that goes against social norms, they may be subject to legal punishment or sanctions, regulatory action, or litigation, resulting in a loss of social trust and financial damage for the Group. | The Group has passed a resolution to establish a framework for ensuring the appropriateness of business operations (our basic policy on internal controls) and is working to establish and disseminate internal controls at each Group company based on this policy. In addition, we have established a compliance promotion system based on compliance-related regulations such as risk, compliance, and sustainability regulations. We formulate a compliance promotion plan every year and systematically implement compliance training for all employees. We have set up a whistleblowing hotline to ensure that any suspected misconduct is caught as early as possible. In the event of a compliance violation, our President, who is the chief compliance officer, will convene relevant parties and take immediate action. |
Risks related to the recoverability of deferred tax assets
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 2 | 3 | The Group records deferred tax assets based on an estimate of future taxable income and the recoverability of future deductible temporary differences and tax losses carried forward. However, if the actual taxable income decreases or if the recoverability of deferred tax assets is revised as a result of changes to the tax system, etc., and it is determined that all or part of the deferred tax assets are not recoverable, the deferred tax assets will be reduced, which may have a negative impact on the Group's business performance and financial position. | The Group therefore reviews its estimates of future taxable income when necessary, taking into account changes in the business environment and other factors, and makes reasonable judgments regarding the recoverability of such income. |
Risks related to large loans and interest rate fluctuations
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 1 | 4 | Going forward, the Group will continue to require investment funds for growth and working capital to carry out the Group's business. However, changes in the environment of the financial and securities markets, fluctuations in interest rates, and changes in the supply and demand for capital may have an adverse effect on the Group's ability to procure funding. If the Group is unable to procure the necessary funds in a timely manner and on favorable terms, the Group's business, business performance, and financial position may be negatively affected. The Group has arranged an LBO loan and has borrowed a large sum of money based on a syndicated loan agreement with financial institutions acting as lenders. However, because interest rates are also subject to periodic revisions, there is a possibility that the Group's business performance may be affected if interest rates rise in the future due to trends in financial markets, etc. The aforementioned syndicated loan agreement includes financial covenants, and in the event of a breach of these covenants, the Company may lose the benefit of the term by the consent of the majority lenders. There is also a possibility that the Group's financial position and cash flow may be affected, such as by the need to repay the loan immediately. |
We are conducting so-called cash flow management for all interest-bearing debts, constantly assessing the optimal timing and amounts to borrow and repay. |
Risk of rising raw material prices
| Likelihood of occurrence | Impact | Risk details | Countermeasures |
|---|---|---|---|
| 3 | 3 | The prices of the main raw materials used in the Group's products fluctuate depending on factors such as the weather, natural disasters, market prices, economic conditions, fuel costs, and exchange rates. Any increase in the prices of these raw materials for a certain reason could lead to an increase in the manufacturing and purchasing costs of the relevant products. In addition, if we cannot respond due to market conditions or negotiations with business partners, or if there are any other problems with the procurement of raw materials due to problems with suppliers, there is a possibility that it will have a significant impact on the Group's business performance and financial position. | The Group strives to ensure fair, impartial and transparent procurement and to build positive relationships with suppliers, while also working to ensure the quality of raw materials and to achieve stable procurement and supply. The Group is taking various measures to mitigate the risk of rising raw material prices, including purchasing raw materials from multiple suppliers where possible, gathering information on market trends of raw materials, promptly considering alternative raw materials, securing appropriate inventory levels, and reducing costs by improving productivity. In addition, after implementing such measures, it is also possible to address rising raw material prices by passing them on to the selling price where possible. |
Protecting Personal Information
To protect personal information, we have established our Personal Information Protection Management Regulations and Regulations for the Protection and Management of Employee Information, etc. In accordance with these rules, we have established an organization and structure to protect personal information, including an appointed personal information protection officer, as well as management method of personal information, and we manage personal information appropriately.
Information Security
With regard to information security, we have established the Information System Security Regulations, Information System Usage Regulations and Information System Management Regulations, which define the general rules and standard operating procedures for the operation of information systems within the Group. We are committed to ensuring the safe and efficient operation of information systems, as well as working to ensure information security and avoid the risk of leaks of the various types of information handled by the Group.
No. of information leak incidents*
| FYE 03/2022 | FYE 03/2023 | FYE 03/2024 |
|---|---|---|
| 0 | 0 | 0 |
- *Group total