Business Risks

Set out below are risks associated with the AGC Group’s operations and other risks that may materially influence the decisions of investors to invest in the AGC Group. However, this section does not include all possible risks relating to the AGC Group; there may exist additional risks not stated below.
Any such risks are also likely to influence investors’ decisions.
Forward-looking statements in this section are based on information available as of March 28, 2019.

1. Economic conditions in markets in which the AGC Group’s products are sold

Demand for the AGC Group’s products is impacted by trends in industries such as construction and building materials, automobiles, electronics, displays, and chemicals. The AGC Group’s products are supplied throughout the world, for example in Asia, the United States and Europe, as well as in Japan, and sales are therefore influenced by local economic conditions. Although the AGC Group is working hard to build an earnings structure that is resilient to changes in the business environment by improving productivity and reducing fixed and variable costs, its performance and financial position are susceptible to declining demand from the industries mentioned as well as economic downturns in the regions where its products are primarily sold.

2. Expansion of overseas operations

The AGC Group has substantial overseas operations, including exports of products and manufacturing abroad. The risks associated with operating abroad include deteriorating political and economic conditions, the imposition of regulations on imports and foreign investments, unexpected changes in laws, the worsening of public security, economic sanctions between countries, and the occurrence of terrorist attacks and war. These events may hinder the AGC Group’s overseas operations and have a serious effect on its performance and financial position.

3. Competitive edge and development and commercialization of new technologies and products

In every field in which the AGC Group operates, there are competitors supplying products similar to those of the AGC Group. Accordingly, to maintain its competitive edge, the AGC Group is striving to identify the needs of customers, and to develop and commercialize new technologies and products.
However, should the AGC Group fail to appropriately respond to technical changes and customer needs or take too long to develop and commercialize new technologies and products, growth could be hampered and profitability could decline. This may significantly impact the AGC Group’s performance and financial position.

4. Procurement of production materials and resources

Because the AGC Group partially uses special materials of which suppliers are limited, if supply tightens or is delayed, the AGC Group’s performance and financial position may be greatly affected.

5. Government regulations

In the countries and regions where it operates, the AGC Group is subject to the local government approval and authorization of investments, regulations on exports and imports, and laws governing commercial transactions, labor, patents, taxation, foreign exchange, and other issues. Consequently, amendments to these regulations and laws may significantly influence the AGC Group’s performance and financial position.

6. Environmental regulations

The AGC Group conducts glass and chemicals operations that use large quantities of resources and energy. Accordingly, we have defined “Environment” as one of Our Shared Values in the AGC Group Vision. While complying with various laws and regulations related to the environment, the AGC Group conducts activities to reduce its environmental impact, such as cutting greenhouse gas emissions and minimizing the amount of industrial waste sent to landfills.
However, in light of the growing seriousness of environmental issues such as mitigation and adaptation to climate change, sustainable use of resources, prevention of pollution, proper management of chemical substances and water risks, the Group faces the possibility of heightened environmental regulation, including the emergence of new laws and regulations and greater corporate social responsibilities. As a result of these factors, the Group may have to bear higher costs needed to comply with laws and achieve environmental regulatory measures, scale down production, and reduce production efficiency.
Consequently, the AGC Group’s performance and financial position may be significantly impacted.

7. Product liability

The AGC Group is making every effort to ensure that products are of the highest quality, according to their individual characteristics. Despite these efforts, the possibility remains that quality problems may occur because of unanticipated factors, prompting a major recall, for example. This could substantially influence the AGC Group’s performance and financial position.

8. Intellectual property rights

The AGC Group endeavors to acquire intellectual property rights that are useful for its present business activities and future operations alike, while investigating the rights and business conditions of third parties, in order to prevent intellectual property issues from arising. However, there is the possibility that the AGC Group will have disputes with third parties over intellectual property or that third parties will infringe the AGC Group’s intellectual property rights. This has the potential to materially influence the AGC Group’s performance and financial position.

9. Litigation and legal procedures

There is always a risk that other firms, corporate groups, or individuals may take legal actions against the AGC Group with respect to its operations at home and abroad. As of March 28, 2019, there were some lawsuits and legal proceedings pending. If these lawsuits and proceedings result in an unfavorable outcome for the AGC Group, its performance and financial position may be significantly impacted.
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10. Effect of natural disasters and accidents

The AGC Group endeavors to prevent occupational accidents and other accidents involving equipment and facilities, such as production machinery, through the establishment and operation of a systematic management system for occupational safety and health, and for industrial safety and security, along with efforts to promote and ensure machinery safety, and to manage inspections, maintenance and repairs. However, the AGC Group faces the risk of unforeseeable events such as a severe occupational accident, serious fire, explosion or leakage incident.
Regarding preparedness for natural disasters, the AGC Group has assessed risks concerning earthquakes, high winds, flooding and other natural events at its major bases, and has drawn up business continuity plans for bases that are exposed to significant hazards. Despite these efforts, the Group faces the risk of unforeseeable events such as damage to production facilities and the suspension of product shipments due to severed transportation networks, as a result of natural disasters such as major earthquakes, typhoons, and floods.
If production is suspended temporarily or for an extended period at any of the Group’s facilities as a result of the occurrence of such unforeseen events, the supply of products to customers may be disrupted given that alternative production is not possible for certain products, and this could have a significant impact on the AGC Group’s performance and financial position.

11. Exchange rate fluctuations

The AGC Group manufactures and sells products worldwide, and converts transaction accounts in local currencies, including sales, costs, and assets, into Japanese yen when preparing its consolidated financial statements. Even if the values of these items remain unchanged in local currency terms, they may change when converted into Japanese yen depending on exchange rates.
The AGC Group also manufactures products at its facilities worldwide, including Japan, and exports the products to a number of countries. The AGC Group generally procures raw materials and sells products in the local currency of each country/region, but there are some product sales and material purchases denominated in foreign currencies.
Accordingly, fluctuations in exchange rates influence the prices of materials the AGC Group procures and the pricing for its products, and this impacts the AGC Group’s performance and financial position.

12. Retirement benefit obligations

The AGC Group calculates costs for employee retirement benefits and obligations based on actuarial assumptions of the returns on pension funds and a specific discount rate. If the actuarial assumptions and results diverge substantially because of deterioration in the market environment for pension fund management, future costs for retirement benefits will increase, and this may seriously impact the AGC Group’s performance and financial position.

13. Decline in fixed asset values

If the values of the AGC Group’s fixed assets were to decline because of a drop in market values or profitability, the AGC Group’s performance and financial position may be substantially impacted.

14. Information security

Information systems are now playing an extremely important role in the AGC Group’s business activities, and the AGC Group strives to protect its information assets, such as systems and data. Nevertheless, if important operations are interrupted or confidential data is leaked and so forth due to a disaster, attack by a hacker or computer virus, unauthorized access, or other unforeseen situation, it may have a significant impact on the AGC Group’s performance and financial position.