Business Risks

  1. Top
  2. To Our Shareholders and Investors
  3. Business Risks

Of matters pertaining to the Happinet Group's business and accounting, the following matters may have a significant impact on the judgments of shareholders and investors.
 Note that matters related to the future involve assumptions made by the Group based on information available at the end of FY2022.

1. Risk Management System

The Happinet Group’s risks are expected to become increasingly diverse as the management and business environment changes and as business activities expand based on the long-term vision and mid-term management plan. For this reason, the Group has established a risk management system led by the president and representative director. The system is in place so that we can understand the risks of the Group and to help us work to mitigate and prevent the risks.
 More specifically, we identify various risks that may affect our business activities, evaluate their importance from the perspective of impact and frequency of occurrence, and select those risks that should be tackled with particular priority as material risks. With regard to the material risks, the department in charge takes the lead in formulating and implementing risk countermeasure plans, monitors progress, and works to make any necessary modifications or improvements.
 Additionally, the status of these risk management activities is reported, in principle, to the Board of Directors at least once a year. The Board of Directors provides appropriate supervision of the progress of risk management activities, as well as direction with regard to awareness of and response to the Group’s issues.

2. Material Risk Selection

In selecting material risks, we first conducted a survey of internal directors and managers, and interviewed the heads of each business division to comprehensively identify risks that could impact the Group.
 With regard to the risks identified, we evaluate their importance using a risk matrix centered on impact and frequency of occurrence, then select material risks that should be addressed with particular priority.

S
"Severe"
: Risks that should be tackled as a top priority and which require regular status reports to the Board of Directors, etc.; risk reduction measures to be implemented in accordance with necessary instructions
H
"High"
: Risks that should be addressed with secondary priority and which require regular status reports to the Board of Directors, etc.
M
"Medium"
: Risks that are managed by each department while regularly understanding the risk situation and checking the progress of countermeasures
L
"Low"
: Risks that must be managed through proper handling of situations in daily operations and checking progress as appropriate

<List of Material Risks>

Category Risk Risk Level
(A)Growth strategy ①Changes in market environment S
②Business investment / acquisitions H
(B)Reliance on specific suppliers / sales customers ③Reliance on specific suppliers / sales customers H
(C)Inventories ④Excess inventory H
(D)Management of outsourced contractors ⑤Management for outsourced contractors H
(E)Securing and developing human resources ⑥Securing and developing human resources H
(F) IT / information management / digital support ⑦System outage/td> S
⑧Information management H
(G)Accident / disaster response, business continuity ⑨Accident / disaster response, business continuity S
(H)Public relations response ⑩Public relations response H

3. Material Risks and Countermeasures

(A)Growth strategy

①Changes in market environment (risk level: S)

Risk Scenario
  • Significant changes in the market environment or deterioration of economic conditions
Countermeasure
  • Formulation of business plans based on market analysis and periodic reviews
  • Introduction of in-house company system
  • Rollout of measures for upstream and downstream sectors in all businesses
  • Expansion of business areas through new business development

②Business investment / acquisitions (risk level: H)

Risk Scenario
  • Deterioration of return on investment and results of acquired company
Countermeasure
  • Regular monitoring of business plan progress and changes in the business environment
    Regular monitoring and review of business portfolio

(B)Reliance on specific suppliers / sales customers

③Reliance on specific suppliers / sales customers (risk level: H)

Risk Scenario
  • Changes in the market environment and trading situation of major suppliers and customers
Countermeasure
  • Rollout of measures for upstream and downstream sectors in all businesses
  • Expansion of business areas through new business development
  • Expansion of share of intermediate distribution by developing new customer base, etc.

(C)Inventories

④Excess inventory (risk level: H)

Risk Scenario
  • Inappropriate progress in demand forecasting and distribution inventory
Countermeasure
  • Appropriate demand forecasting using information systems and product supply that do not
    miss opportunities
  • Clarification of purchasing decision process and standards

(D)Management of outsourced contractors

⑤Management for outsourced contractors (risk level: H)

Risk Scenario a) Product liability and quality control
  • Serious product defects due to insufficient management and supervision of manufacturing
    contractors

b) Management of outsourced contractors
  • Suspension of sales of products or release of video works due to violation of laws or scandals at outsourced contractors
Countermeasure a)
  • Thorough quality control based on the Group’s quality standards Establishment of a
    management system for manufacturing contractors
  • Awareness training for management and related employees, review of contract details

b)
  • Prioritized response in business divisions at high risk

(E)Securing and developing human resources

⑥Securing and developing human resources (risk level: H)

Risk Scenario
  • Recruitment difficulties due to decreasing working population
  • Outflow of human resources due to poorer workplace environment and motivation
Countermeasure
  • Establishment of a learning system based on human resource cultivation policy
  • Creation of an environment where diverse employees can thrive and work with peace of mind
  • Active recruitment activities

(F)IT / information management / digital support

⑦System outage (risk level: S)

Risk Scenario
  • Communication network disconnection due to natural disasters, sudden power outages, etc.
  • Information security incidents due to cyberattacks, computer viruses, etc.
Countermeasure
  • Consideration of measures related to systems and operations at the Company-Wide Security
    Committee
  • Consideration of measures through assessments
  • Group-wide awareness activities and training

⑧Information management (risk level: H)

Risk Scenario
  • Leaks of personal information or confidential information of the company or business partners to external parties due to loss of paper documents or computers, misdirected e-mails, etc.
Countermeasure
  • Formulation of rules and manuals to prevent misdirected emails
  • Group-wide educational activities regarding information management
  • Cloud-based data management

(G)Accident / disaster response, business continuity

⑨Accident / disaster response, business continuity (risk level: S)

Risk Scenario
  • Long-term suspension of business due to natural disasters such as large-scale earthquakes,
    typhoons, and torrential rain, or accidents such as fires and power outages
Countermeasure
  • Publishing of basic policies for business continuity and quick recovery
  • Formulation and periodic review of business continuity plan (BCP)

(H)Public relations response

⑩Public relations response (risk level: H)

Risk Scenario
  • Deterioration of trust and compensation for damages due to incomplete disclosure, failure to
    respond to mass media/complaints, reporting based on factual errors, sharing of false
    information on social media, misleading display of products and video works, etc.
Countermeasure
  • Formulation and periodic review of crisis management public relations manual
  • Regular sharing of PR information in the Public Relations Committee, identification of
    important PR risks, and efforts to mitigate them