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Business Risks

The business performance of the Pigeon Group is subject to major impacts from a range of possible future events. Below is a list of the factors we consider the principal sources of risk to the development of our business. The risks described below are those identified by the Group when producing this report for the fiscal year ended January 31, 2018 under review.

(1) Declining birth rate

The Pigeon Group’s mainstay business is baby and mother care products for the domestic market. These products are vulnerable to a fall in demand when the birth rate declines, and such a decline could cause a decrease in the Group’s net sales.

(2) Risks accompanying overseas operations

At present, the Pigeon Group manufactures products in Thailand, China, Turkey, Indonesia, and India, and is expanding its overseas businesses centering on Asia, the Middle East, North America, and Europe. The following are risks associated with business operations overseas, including China. While every effort has been taken to mitigate such risks, a range of unforeseen factors could affect the Group’s business results.
* The amendment of laws and strengthening of regulations that could affect the Group adversely
* Social or economic upheaval caused by the outbreak of terrorism or war, or an infectious disease pandemic, such as a new strain of influenza
* The occurrence of an earthquake or other natural disaster
* Greater than expected exchange rate fluctuations

(3) Damage caused by weather or natural disasters

The effect of weather on the Pigeon Group’s mainstay products (baby care, mother care, and nursing care products) is considered to be relatively low. However, a sudden disaster, meteorological event, or unforeseen accident could have an adverse effect on manufacturing, distribution, and other facilities, lead to the loss of assets, and cause financial losses due to the accumulation of products, which could affect the Group’s business results.

(4) Fluctuations in raw material prices

The main raw materials used by the Pigeon Group are subject to fluctuations in the market prices of crude oil and pulp paper. A sharp increase in the price of such key raw materials could cause a sudden increase in manufacturing costs, and there may also be situations when, due to market conditions, it is not possible to offset such a price increase by increasing sales prices. Such fluctuations could affect the Group’s business results.

(5) Accident at a consigned manufacturing site

Some of the Pigeon Group’s mainstay baby care, mother care, and nursing care products are manufactured on consignment outside the Group. While every effort has been made to assure quality, an unforeseen accident affecting quality occur at one of these sites could affect the Group’s business results.

(6) Changes to laws and regulations

The Pigeon Group’s domestic business operations are subject to a wide range of legal regulations, including the Pharmaceutical Affairs Act, the Food Sanitation Act, and the Product Liability Act. Any change to such laws and regulations or introduction of unforeseen laws or regulations could affect the Group’s business results.

(7) Risks accompanying child-rearing support services

The Pigeon Group has many infants and children under its care through its daycare, child-minding, and Kid’s World preschool educational services, which enable parents to continue working while raising a family. While we pay the utmost attention to safety, babies and infants can receive unforeseen injuries. So far, there has not been an accident or matter requiring compensation with the potential to affect Pigeon’s business operations. However, it is not possible to say that such an incident will not happen in the future. Should such an incident occur, it could affect the Group’s business results.

(8) Product liability

As a manufacturer of daily-use products, the quality and safety of products and the assessment of raw materials used to make products are extremely important to the Pigeon Group. At every stage, from design to mass production, we take every measure possible to ensure quality and safety. However, a defect could occur in a product, and an unforeseen accident could incur losses due to a product recall or a drop-off in sales stemming from customer outflows. Such factors could adversely affect the Group’s business.

(9) Litigation

Since its establishment, the Pigeon Group has not been subject to litigation or other legal action, such as a huge claim for compensation. However, pursuing business activities, whether in Japan and overseas, always comes with the risk of legal action. The Group’s business results could be affected in the unlikely event that the Group were to be sued, depending on the result of such litigation.

(10) Information system risk

The Pigeon Group holds a large amount of personal information on its customers in connection with marketing activities, including sales promotion campaigns and the Newborn Baby Commemorative Tree-Planting Campaign. The Group takes appropriate security measures in its information management and information systems to prevent the loss, misuse, or falsification of such important information. Nonetheless, due to an unforeseen incident such as a power outage, disaster, software or computer equipment defect, computer virus infection, or unauthorized access, there is the risk that an information system could be destroyed, shut down, or temporarily disrupted, and that internal information, including customer information, could be lost, leaked, or falsified. Such an incident could interfere with operating activities, which could affect the Group’s business results and financial position.

(11) Leakage of personal information

Through the provision of products and services to consumers, the Pigeon Group holds a large amount of personal information. The Group ensures on a routine basis that all employees are fully aware of the importance of protecting personal information, holds mandatory in-house training, and strives to reinforce the management of customer information. However, it is possible that, for some reason or other, personal information is leaked outside the Group. Such an incident could affect the Group’s business results.

(12) Credit risk

The Pigeon Group has dealings with business partners in Japan and overseas. Should a business partner’s business fail or its credit status deteriorate, it would create a credit risk associated with the Group’s inability to recover that business partner’s credit obligations. Such a situation could affect the Group’s business results.

Group Risk Management Organization