Financial Information
Operating Risks
Of the factors affecting Sysmex's business and financial conditions, those having the greatest potential to affect investors’ judgments are described below.
Future-related information contained in the text below is based on the Sysmex Group's judgment as of the end of the fiscal year under review.
1. Changes in economic trends
The Sysmex Group operates primarily in the healthcare sector, which is relatively stable. However, we acknowledge that deteriorating government healthcare finances due to economic conditions or budget reductions in hospitals and other medical facilities could affect our operating results and financial position. Additionally, a significant increase in global inflation and rising interest rates may lead to higher costs across a wide range of areas, including production and distribution, which could affect our consolidated performance.
The Sysmex Group will continue using its global network to monitor and analyze changes in the market environment in each country and region. We will also implement appropriate measures to further enhance efficiency and create added value across the entire Group.
The Sysmex Group will continue using its global network to monitor and analyze changes in the market environment in each country and region. We will also implement appropriate measures to further enhance efficiency and create added value across the entire Group.
2. Impact of Exchange Rate Fluctuations
The Sysmex Group sells to overseas customers through its overseas affiliates and distributors. Overseas sales account for a high proportion of consolidated net sales: 84.7% in the fiscal year ended March 31, 2022 and 85.4% in the fiscal year ended March 31, 2023. The line items in the local-currency financial statements of overseas affiliates are affected by fluctuations in exchange rates when converted into yen. The Sysmex Group takes measures to mitigate the risks associated with the settlement and year-end valuation of its assets and liabilities denominated in foreign currencies through forward exchange contracts and other means. However, if exchange rates fluctuate more than expected, the Sysmex Group’s operating results and financial position could be affected.
3. The Impact of Healthcare System Reform
Against a backdrop of advances in medical technology, decline in the birthrate and rapid aging of the population mainly in developed countries, increased demand from patients for a higher-quality healthcare and other changes in the healthcare environment, healthcare system reform continues. Such reforms are designed to optimize healthcare costs and efficiently provide high-quality healthcare services. Meanwhile, COVID-19 has reaffirmed the importance of testing and medical care in countries with relatively weak medical infrastructures, and of the acceleration of efforts to reform healthcare systems. Also, new needs are expected to emerge. The Sysmex Group’s operating results and financial position could be affected by such healthcare system reforms. For this reason, we will continue to leverage the Sysmex Group’s network and accurately identify opportunities amid various changes in the environment. Furthermore, we will continue to commercialize life sciences, including through the creation of diagnostic technologies that contribute to personalized medicine. We will also strive to meticulously respond to diversifying needs by providing total solutions that combine in vitro diagnostic instruments and reagents, information technology and after-sales support.
In certain countries that have protectionist measures in place, it may be necessary to assemble products and procure parts and raw materials locally. We are working to stay informed of the latest information and continue with initiatives to move to local production.
Most of our instruments and reagents require regulatory approval and registration in each country, and regulatory review efforts are accelerating. While requirements for obtaining regulatory approval are becoming increasingly complex and sophisticated, there are also moves toward deregulation. An inability to respond swiftly and adroitly to such changes could result in difficulties with maintaining regulatory approvals that have already been received or delays in obtaining regulatory approvals on new products. This could lead to lost market opportunities, increased compliance costs and an inability to get products to customers in a timely manner.
For that reason, we strive to remain abreast of the latest information on laws and regulations by participating in industry associations in individual countries. We also endeavor to obtain and maintain regulatory approvals in a timely and accurate manner by leveraging our network to create a global structure for obtaining regulatory approval.
4. The Sysmex Group and Third-Party Intellectual Property Rights
The Sysmex Group applies for patents, trademarks and design rights on a global basis, but such rights may not be granted in some or any countries. In addition, we may not be fully successful in the measures we take to prevent the unauthorized use of intellectual property owned by the Sysmex Group. Meanwhile, intellectual property disputes, such as lawsuits and requests for royalty payments, may arise with respect to the intellectual property rights of third parties, regardless of whether use by the Sysmex Group is legitimate.
The Sysmex Group strives to conduct its business activities in a manner that respects its own intellectual property rights and those of third parties through a global compliance code and intellectual property training for employees. In addition, in our company regulations we have introduced an intellectual property review system, and we work to obtain intellectual property rights as a routine part of our R&D and business activities. We also strive to reduce the potential for disputes with third parties about intellectual property rights.
5. Product Quality
The in vitro diagnostic instruments and reagents that Sysmex provides must be extremely reliable, so the Sysmex Group has introduced a comprehensive quality management system. However, earnings could be affected if problems with product quality were to arise nevertheless.
To avoid this situation, the Sysmex Group works to maintain product quality in accordance with international standards and local laws and ordinances. The Sysmex Group studies and analyzes information related to reliability and safety from Japanese and overseas markets, as well as from within the Company; collates technical information that may improve design quality; and implements rigorous quality checks at the start of product mass production and prior to product launch to reinforce its quality guarantees.
To avoid this situation, the Sysmex Group works to maintain product quality in accordance with international standards and local laws and ordinances. The Sysmex Group studies and analyzes information related to reliability and safety from Japanese and overseas markets, as well as from within the Company; collates technical information that may improve design quality; and implements rigorous quality checks at the start of product mass production and prior to product launch to reinforce its quality guarantees.
6. Climate change
Corporate social responsibility is playing an important role, as realizing a sustainable society takes on greater importance. Adapting to climate change is a key challenge for our company. Climate change resulting from increased greenhouse gas emissions has significant impacts on extreme weather events, droughts, and biodiversity, posing risks to the stable global supply of our products through disruptions and interruptions in sourcing raw materials and logistics networks. Additionally, there is a growing trend toward strengthened environmental regulations, including import tariffs and bidding requirements, primarily in Europe and the United States.
Against this backdrop, we have formulated the Sysmex Eco-Vision 2033 to guide the Group’s environmental management over the long term. This vision is based on our Environmental Policy, which specifies that, by shaping the advancement of healthcare, our global environmental conservation activities contribute to the creation of a fulfilling and healthy society. At the same time, our vision is to co-create with our stakeholders and work throughout the Group to contribute to the realization of a circular society. To this end, we are promoting the creation of environmentally friendly products and services, reductions in water consumption and waste, and an increase in the recycling ratio.
We endorse the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and strive to assess, manage and enhance the disclosure of climate-related risks and opportunities based on its framework. Additionally, we have set a new target to achieve net-zero greenhouse gas emissions from our operations by 2040. Going forward, we will further establish targets based on Science-Based Targets (SBT) and accelerate our efforts.
Against this backdrop, we have formulated the Sysmex Eco-Vision 2033 to guide the Group’s environmental management over the long term. This vision is based on our Environmental Policy, which specifies that, by shaping the advancement of healthcare, our global environmental conservation activities contribute to the creation of a fulfilling and healthy society. At the same time, our vision is to co-create with our stakeholders and work throughout the Group to contribute to the realization of a circular society. To this end, we are promoting the creation of environmentally friendly products and services, reductions in water consumption and waste, and an increase in the recycling ratio.
We endorse the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and strive to assess, manage and enhance the disclosure of climate-related risks and opportunities based on its framework. Additionally, we have set a new target to achieve net-zero greenhouse gas emissions from our operations by 2040. Going forward, we will further establish targets based on Science-Based Targets (SBT) and accelerate our efforts.
7. Stable Product Supply
The Sysmex Group markets its in vitro diagnostic instrument and reagent products to customers in more than 190 countries and regions, and works to ensure the stable supply of these products to customers. However, sudden changes in market conditions or suppliers’ suspension of business operations could lead to difficulties in sourcing parts and raw materials. In addition, manufacturing or supply chain locations could be affected by large-scale natural disasters, outbreaks of infectious disease, or fires or other serious accidents. Such factors could hinder our ability to supply products to the market.
We strive to avoid risks by securing inventories of parts and raw materials and purchasing from multiple suppliers. We are also working to enhance disaster prevention and recovery measures at our manufacturing sites.
Specifically with regard to reagent products, which accounted for 60.3% of the Sysmex Group’s consolidated net sales in the year ended March 31, 2023, we maintain inventories sufficient for BCP measures, taking recovery periods into account. We also engage in production at multiple bases. In our mainstay field of hematology, in addition to utilizing local production to ensure multiple manufacturing locations, we have created a mutual supply system for our key locations in Europe, the Americas, China and Japan to maintain a stable supply.
We strive to avoid risks by securing inventories of parts and raw materials and purchasing from multiple suppliers. We are also working to enhance disaster prevention and recovery measures at our manufacturing sites.
Specifically with regard to reagent products, which accounted for 60.3% of the Sysmex Group’s consolidated net sales in the year ended March 31, 2023, we maintain inventories sufficient for BCP measures, taking recovery periods into account. We also engage in production at multiple bases. In our mainstay field of hematology, in addition to utilizing local production to ensure multiple manufacturing locations, we have created a mutual supply system for our key locations in Europe, the Americas, China and Japan to maintain a stable supply.
8. Risks of Using Information Systems
The Sysmex Group employs information technology in its decision-making procedures, such as transmitting information, supporting core businesses and completing approval documents via the Sysmex Group’s internal network.
To minimize the potential operational impacts of network or information system disruption, computer viruses or unauthorized external access to information systems, we have introduced mechanisms to detect unauthorized communications and quarantine malware. We also maintain 24-hour surveillance, have in place a Computer Security Incident Response Team (CSIRT), maintain security measures such as joining external organizations for early access to information on threats to emergencies and serious incidents and are enhancing our IT business continuity plan. Furthermore, we are strengthening internal controls by strictly managing users and restricting access.
To minimize the potential operational impacts of network or information system disruption, computer viruses or unauthorized external access to information systems, we have introduced mechanisms to detect unauthorized communications and quarantine malware. We also maintain 24-hour surveillance, have in place a Computer Security Incident Response Team (CSIRT), maintain security measures such as joining external organizations for early access to information on threats to emergencies and serious incidents and are enhancing our IT business continuity plan. Furthermore, we are strengthening internal controls by strictly managing users and restricting access.
9. Risks Related to Corporate Acquisitions
The Sysmex Group may engage in M&A or capital alliances as a means of achieving sustainable growth and business development. In the interest of limiting risk, we strive to conduct sufficient research prior to such M&A activity. However, we may be unable to realize the anticipated benefits of such activity due to changes in a target company’s business environment or operations, the emergence of information that was not apparent during initial investigations, or changes in the target company’s business environment or operations following an acquisition.
10. Impact of the Spread of New Infectious Diseases
The spread of the COVID-19 pandemic is showing signs of subsiding, and restrictions in various countries are gradually being lifted. However, a resurgence in the spread of mutant strains or the emergence of new infectious diseases could affect the testing volume at medical institutions, create disruptions in logistics and raw material procurement, and result in decreased productivity due to difficulties in maintaining and sustaining staffing and labor conditions. This situation could affect the operating results and financial position of the Sysmex Group.
Based on its experience during the COVID-19 pandemic, the Sysmex Group has developed a business continuity plan for infectious diseases to ensure a stable product supply, continued service activities for its customers, and the safety of its employees. Furthermore, we have implemented flexible work arrangements, such as remote work, to adapt to emergency situations and support a new way of working that suits the lifestyle of each employee, not only during times of infectious disease outbreaks. Additionally, we are actively developing and selling diagnostic products used in the diagnosis of COVID-19 and responding to new testing demands. We are also promoting the establishment of contract testing laboratories and building testing frameworks to prevent the spread of infections. Moving forward, we will continue to contribute to resolving medical issues.
Based on its experience during the COVID-19 pandemic, the Sysmex Group has developed a business continuity plan for infectious diseases to ensure a stable product supply, continued service activities for its customers, and the safety of its employees. Furthermore, we have implemented flexible work arrangements, such as remote work, to adapt to emergency situations and support a new way of working that suits the lifestyle of each employee, not only during times of infectious disease outbreaks. Additionally, we are actively developing and selling diagnostic products used in the diagnosis of COVID-19 and responding to new testing demands. We are also promoting the establishment of contract testing laboratories and building testing frameworks to prevent the spread of infections. Moving forward, we will continue to contribute to resolving medical issues.
11. Other Risks
The Sysmex Group engages in global manufacturing, sales, research and other activities, and we have locations around the world. These bases and their surrounding areas could be subject to large-scale natural disasters (such as earthquakes and storm and flood damage), as well terrorism, conflicts, international economic friction and other geopolitical problems. Geopolitical tensions that lead to trade friction and stricter import/export regulations, as well as conflicts between countries such as the recent Russian invasion of Ukraine, could disrupt markets and affect our operating performance.
The Sysmex Group monitors conditions in various countries and regions, sharing information globally. We comply strictly with export and import regulations related to security and ensure the uninterrupted supply of our products, contributing to humanitarian aid and healthcare while prioritizing safety.
Going forward, we will carefully gather and monitor information regarding the rapidly changing global situation and consider the impact on the Company as well as necessary responses in a timely manner.
The Sysmex Group monitors conditions in various countries and regions, sharing information globally. We comply strictly with export and import regulations related to security and ensure the uninterrupted supply of our products, contributing to humanitarian aid and healthcare while prioritizing safety.
Going forward, we will carefully gather and monitor information regarding the rapidly changing global situation and consider the impact on the Company as well as necessary responses in a timely manner.