Risk Management | IR Information | Morinaga & Co., Ltd.

Philosophy of Total Risk Management

The Morinaga Group identifies total risk that potentially exists in its business activities and takes appropriate measures against the risk based on the philosophy of total risk management.

(1) To Fulfill Corporate Social Responsibility

(i) Ensuring of the safety of employees and visitors
(ii) Safeguarding of assets
(iii) Early business recovery and ensuring of business continuity

(2) To Gain Corporate Social Responsibility

(i) Timely and appropriate information disclosure
(ii) Contribution to local communities
(iii) Humanitarian considerations

Major Risks and Responses

In an effort to respond to potential risks existing in its business activities, the Morinaga Group established the “Total Risk Management Rules” in FY2002/3 as part of its internal control system. Based on the Rules, we classify and assess possible risks and implement preventive measures in normal times. See the table below for major possible risks and countermeasures.
The Total Risk Management Rules includes various manuals such as the Natural Disaster Crisis Preparedness Manual, which sets out measures to ensure an early resumption of business in case of crisis. In FY2018/3, in an attempt to take our business continuity plan (BCP) a step further, we began to work on the development of business continuity management (BCM), a framework of continuous improvements that allow the Company to continue operations even when being affected by a disaster or accident, or resume operations as early as possible after an interruption.
In the event of a crisis, we will assess and judge the situation promptly, take necessary actions such as the establishment of a task force and information disclosure, while conducting a cause analysis and implementing recurrence prevention measures.
Further, to demonstrate our strong stance against anti-social forces, we appointed a person in charge of preventing unreasonable demands. We also work to collect information from related administrative agencies, and, in case of an emergency, we will take organization-wide actions swiftly, working closely with these agencies.

Morinaga Group's Total Risk Management System

Main Risks and Responses in Our Group

■ Important risks that might affect business performance or financial position from a short- to medium-term perspective

Risk Items	Assumed risks	Degree of impact	Frequency of occurrence	Responses by the Morinaga Group
Cyber-attacks	Leakage of personal information, customer information,and/or confidential information Suspension of supply chains, such as production lines and logistics functions	High	Medium	Implementation of 24-hour monitoring by the Security Operations Center Prompt and appropriate response to security risk assessments and their results Updating of various rules and regulations related to security as appropriate, and extensive security training for all employees Enhancement of system security In the event of an incident, quick and appropriate response and recovery in cooperation with all relevant parties
Product defects and recalls	Shipment of products to the market that do not meet the specified quality standards due to contamination with foreign objects/substances or other concerns	High	Medium	Establishment of a quality assurance system based on the Quality Assurance Policy and Quality Assurance Rules,and other guidelines Confirmation of safety, legality, and other important items of raw materials and products through the Quality Assessment System during product development Management and inspection of manufacturing contractors Establishment of Crisis Response Guidelines in preparation for the occurrence of quality incidents
Occupational accidents	Occurrence of an accident that threatens the life or health of an employee, and loss of valuable human resources (e.g.,accidents during manufacturing operations, traffic accidents)	High	Medium	Establishment of the Morinaga Group Occupational Health and Safety Policy, dissemination of information both inside and outside the Company, and promotion of a safe and comfortable work environment Labor-management safety meetings to share information on occupational accidents and to prevent accidents
Investment in property,plant, and equipment	Failure to obtain results as anticipated and planned at the initial stage of investment, leading to impairment losses on property, plant, and equipment	High	Medium	Implementation of investment management in accordance with the following Investment Management Policy ▷ When investing above a certain threshold, a resolution of the Board of Directors shall be obtained, and a comprehensive evaluation shall be conducted from multiple perspectives including qualitative, quantitative, and risk assessments ▷ Continuous monitoring of the return on investment, timely identification of changes, and implementation of appropriate recovery plans
Leakage of personal information due to unauthorized removal	Leakage of confidential and important information such as customers’ personal information due to unauthorized removal by officer or employee	High	Medium	Establishment and operation of personal information handling regulations, personal information handling bylaws,and operation manuals
Supply chain disruptions caused by typhoons,storm surges,water damage,and/or floods	Suspension of procurement, production, logistics, and sales activities due to damage to factories or warehouses, employee injuries, logistics disruptions, or other disasters Occurrence of disaster losses related to property, plant, and equipment, and inventories due to flooding of factories	Medium	Medium	Implementation of hazard maps, confirmation of evacuation sites, inspection of disaster prevention equipment,disaster drills, inspection of emergency rations, and other emergency measures In the event of a typhoon or heavy rain that is predicted, monitoring of the surrounding conditions of distribution centers and product warehouses, and alerting related parties
Spread of infectious diseases	Suspension of supply chains, such as production lines and logistics functions, due to an infectious disease spread among employees Inefficiency in the operation of indirect tasks due to an infectious disease spread among employees at the Head Office and sales offices	Medium	Medium	Updating of the Policy for Responding to the Spread of Infectious Diseases to ensure thorough dissemination and preparation in the event of an outbreak or at the initial stage Stockpiling of hygiene products as a countermeasure against internal infection

■ Important risks that might affect business performance or financial position from a medium- to long-term perspective

Risk Items	Assumed risks	Degree of impact	Frequency of occurrence	Responses by the Morinaga Group
Procurement of raw materials and supplies	Shortage of raw materials and inability to procure alternative raw materials due to environmental changes such as climate change,demographics, political instability, and exchange rate fluctuations	High	High	Decentralization and diversification of production areas and supplier procurement bases Promotion of sustainability for important raw materials and sustainability initiatives by suppliers Maintaining appropriate inventory levels Execution of foreign exchange contracts and other measures to hedge against currency fluctuations
Increased costs for compliance with greenhouse gas emission regulations	Additional energy-related costs due to greenhouse gas emission regulations	Medium	High	Transition to a highly efficient production system by promoting the changeover to smart factories Replacement of aging equipment with energy-saving equipment Takasaki Morinaga Co., Ltd., has started using solar power through an on-site PPA Promotion of the introduction of renewable energy
Increased costs of compliance with energy-saving policies	Additional costs incurred due to investments in manufacturing equipment associated with energy-saving measures	High	Medium
Stagnation of succession planning	Inability to continuously produce executives due to failure to properly create and operate succession plans	High	Medium	Selection and annual review of officer candidates, general manager candidates, and manager candidates, and implementation of selective training and planned allocation of candidates Securing of diverse human resources through external mid-career recruitment in parallel with internal selection and training

The above factors are not the only factors that may have an impact on business results and financial position.

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