Business Risks

The Teijin Group recognizes certain risks as having the potential to affect its operating results and/or financial position. As of the date of this document, these risks included, but were not limited to, the risks listed below.

Market-Related Risk

The Teijin Group is working to transform itself into a corporate entity that is not swayed by changes in the general operating environment. Nonetheless, certain of the Group’s products are vulnerable to market conditions, as a consequence of which the Group’s performance may be affected by market trends, as well as by competition with other companies and sales price fluctuations arising thereof. Businesses involving commoditized materials—notably polyester fibers, polyester films and polycarbonate resin—are particularly vulnerable to fluctuations in shipments, sales prices and procurement costs for raw materials and fuel related to market conditions and competition with other companies. Because the cost of raw materials and fuel accounts for a major portion of production costs in these businesses, fluctuations in the price of crude oil may have a significant impact on the Group’s income performance.

The majority of products in the Teijin Group’s materials businesses are intermediates. Owing to inventory adjustments at each stage of production and sales, the rate of expansion or contraction of end-user demand for such products may exceed that of the real economy.

The Teijin Group’s Healthcare segment is vulnerable to changes in drug reimbursement prices under Japan’s NHI scheme, as well as to increasingly intense competition, both of which may have a negative impact on sales prices.

Fluctuations in foreign exchange and interest rates also have the potential to affect the Teijin Group’s operating results and/or financial position.

Product Quality Risk

Teijin and the principal companies of the Teijin Group, including Teijin Pharma Limited, have established a dedicated product quality and reliability assurance function in the form of a division which functions independently of other divisions. The division, which adheres to strict quality management standards, is charged with product quality and reliability assurance for all Group businesses. However, there can be no assurance that all products are free of unforeseen major quality issues. Product and service defects arising from such quality issues have the potential to negatively affect, among others, the Group’s operating results, financial position and public reputation.

R&D-Related Risk

The Teijin Group actively allocates management resources to R&D with the aim of realizing sustainable growth through technology-driven innovation. However, the outcome of such R&D may diverge significantly from the objectives thereof, a situation that has the potential to negatively affect, among others, the Group’s operating results.

In particular, R&D in the pharmaceuticals business is characterized by significant investments of funds and time. Pharmaceuticals discovery research has a high incidence of failure. In the initial stages, there is a high risk that researchers will fail to discover a promising drug. Even if a promising drug is discovered, clinical trials may prove it not to be as effective as anticipated, or to have unexpected adverse side effects, thereby forcing the abandonment of plans to apply for approval. There is also a risk that a new drug candidate may not receive regulatory approval as a result of the examination process that follows application, or that approval may be rescinded based on the outcome of research conducted subsequent to launch.

Risks Related to Overseas Operations

The Teijin Group has operations--in the High-Performance Fibers, Polyester Fibers, Films and Plastics,?€Pharmaceuticals and Home Health Care, and Trading and Retail segments--in the PRC, Southeast Asia (including?€Thailand and Singapore), Europe (including Germany and the Netherlands) and the United States. These?€operations are vulnerable to the impact of fluctuations in foreign exchange and interest rates. Our operations in the?€PRC and Southeast Asia, in particular, may also be affected by such factors as the enforcement of new--or?€unexpected changes to existing--laws, regulations or tax systems that exert an adverse impact on the Group;?€economic fluctuations; or by social unrest triggered by, among others, changes of government or acts of terror or?€war. The manifestation of such risks has the potential to adversely affect the Group's operating results and/or?€financial position.

Risks Related to Accidents and Disasters

The Teijin Group has prepared common disaster prevention guidelines for use by all Group companies and is an?€active proponent of efforts to prevent and/or alleviate the impact of disasters through disaster prevention?€diagnostics, earthquake response measures, fire prevention and other advance prevention strategies, disaster?€prevention education and training and post-disaster impact mitigation measures.

Nonetheless, in the event of a major natural disaster or unforeseen accident that results in damage to the Group's?€production facilities or significantly impedes the Group's supply chain, such developments may have a negative?€impact on the Group's operating results and/or financial position.