Business and Other Risks

1. Risks in each of the Group's businesses

The Citizen Group's main business is to manufacture and sell watches, machine tools, electronic devices, and electronic products. The Group operates its business all over the world, and our customers include both individuals and various manufacturers. Therefore, our operating results are influenced by various factors, some of which are listed below.


Competition in the watch market is intensifying, not only from Japanese brands, but also from high-end Swiss brands, low-end Chinese manufacturers, and smartwatch manufacturers, along with alternative products such as smartphones with watch functions. With respect to movements, demand for analog quartz movements is trending downwards, primarily in the low-end range, reflecting an increase in demand for smartwatches. In addition, unit prices are falling due to an intensifying competitive environment resulting mainly from the rise of Chinese manufacturers. Consequently, there is a risk of a decline in the quantity and market share.

Machine tools

The machine tools business is susceptible to the effects of decline in demand for capital investment caused by economic fluctuations, soaring natural resource and raw material prices, regulations or significant changes in laws and regulations in countries and regions in which the Group operates its business, fierce competition in the market, and stagnation, confusion, etc. of supply chains. There is a risk that the Group’s business performance may be adversely affected by the above in the future.

Devices and components

The devices and components business is characterized by the rapid pace of technological innovation, changes in customer requirements, and high rates of new product and service introduction. Accordingly, declining sales prices, etc. caused by obsolescence of existing products and services may significantly affect the Group’s business performance. Precision machining components are susceptible to the trends of technical innovation among customers, including automotive and smart phone manufacturers. As for opto-devices, patent licensing agreements are concluded for manufacturing certain products. Our business results could be affected should a cooperative relationship underpinning a patent agreement break down and access to the patent be lost.

Electronic and other products

The electronic and other products business is susceptible to declining capital expenditure, customer business activities, and personal spending as a result of changing economic conditions, as well as stricter product safety-related laws, regulations, and standards, may affect future business performance. With intense competition from electronics manufacturers in China and other countries in addition to domestic manufacturers, and rapid technological innovation, drop in sales prices, delays in development, may affect our business performance.

2. Overseas sales

Overseas sales account for a high percentage of the Group’s overall product sales. As our products are sold worldwide, our operating results may be affected by economic and consumer trends in each area, as well as by political and socioeconomic factors.

3. Foreign currency fluctuation risk

As overseas sales account for a high percentage of the Group’s product sales, as mentioned above 2, we enter into foreign currency contracts, currency options and other such transactions to hedge against risks. Although we are expanding and strengthening our overseas production, currency fluctuations may still affect the Group’s operating results. </p>

4. Manufacturing in China

China is one of Group's main production bases for the Group’s products. It is therefore possible for our operating results to be affected by factors in China, such as the suspension of production due to problems, the enactment of new regulations that could affect production, or the sharp appreciation of the Chinese yuan.

5. Impairment loss

An impairment loss would be applicable if the market value of the Group’s assets were to decline significantly or the profitability of our business were to deteriorate. This may affect the Group’s operating results and financial position.

6. Patent and intangible property

As part of the Group’s R&D and production activities, we make use of a variety of technologies covered by intellectual property rights. These include intellectual property rights that are owned by the Citizen Group, and others for which we believe we have legitimately received licenses to use. Nevertheless, should a third party claim, based on grounds of which we are unaware, that its intellectual property rights have been violated, a dispute could arise that could affect the Group’s business results. For some products in particular, manufacturing is based on patent licensing agreements. If a cooperative relationship underpinning such an agreement were to break down, or access to the relevant patent were to be lost, it may affect our business results.

7. Risk related to natural disaster such as earthquakes

We have established a Group risk management system to avoid any injury or damage to facilities in the event of a fire, an earthquake or other disaster through drills and other safety activities at our headquarters and works. In the event of a particularly serious earthquake or other such disaster, however, our production activities and product supplies may be affected. There may also be a significant impact on our operating results and financial position due to reconstruction costs, for example.

8. Risks related to M&As and business alliances

We are committed to strengthening the Group’s business foundations through M&A and business alliances. When undertaking such activities, we carry out comprehensive research into and examinations of the companies involved. Nevertheless, there may be risks that we discover later, such as unrealized liabilities or obstacles in implementing projects, which may materially affect the Group’s operating results and financial position.

9. Risk related to borrowings

The Group’s borrowings include syndicated loans and commitment line agreements with financial institutions. Any violation of financial restrictions under such agreements could result in demands for the accelerated repayment of the relevant borrowings, which may affect the Group’s financial position.

10. Risks related to information security

With the number of illegitimate accesses and external cyberattacks continuously growing globally, the Group has been working to strengthen information security. However, in the event of any damages to its information system function due to an external cyberattack or for other reasons, or the occurrence of incidents such as the suspension of services by service providers, the Group's business activities, business performance and financial conditions may be seriously affected.
The Group holds and manages, in a variety of forms, personal information obtained from customers and other sources, as well as confidential information related to the technologies, research and development, manufacture and sales of the Group and customers. The Group has been taking measures to protect such confidential information. Even so, such measures may not work effectively, if any matters that are not expected to occur initially arise. If, therefore, such information is disclosed without any authority, the Group may be asked for compensation for losses and damages, or face lawsuits, which may affect the business performances, financial conditions, reputation and credibility of the Group.

11. Other risks

The Group’s operating results may be affected by a variety of factors in addition to the above, including changes in social infrastructure and market competition as a result of rapid advances in technology, changes in the Group’s financial or managerial situation as a result of ongoing restructuring initiatives, trading restrictions in major markets in Japan or overseas, international taxation risk including the transfer pricing taxation system, or substantial changes in stock or bond markets.