Risk Management

Corporate Governance

Basic Concepts and Promotion System

ROHM considers all phenomena that may hinder the work and business performance if they occur to be "risks." In addition to working to minimize such occurrences, we also implement measures to ensure that it will be possible to either continue or restore the business smoothly even if disasters or similar events do occur.
In specific terms, a "Risk Management and BCM Committee" has been formed under the "CSR Committee" that is chaired by the President. This committee identifies, analyzes and supervises the major risks that may occur in the execution of the duties of the ROHM Group. Furthermore, in addition to evaluating the activities of the departments responsible for each risk, it also promotes the formulation of a Business Continuity Plan (BCP) and works for its thorough implementation throughout the company so that efforts are made to implement all possible preparations and countermeasures in advance.
A Risk Management Office has been established in the Department of General Affairs as an internal organization for the elimination of antisocial forces. It coordinates and exchanges information with external specialist organizations such as the police department and expands and implements specific activities to eliminate antisocial forces.

Business Risks

The following are risks that may have a significant impact on the financial status and operating results of the ROHM Group. References to future events are based on judgments made by the ROHM Group at the end of current fiscal year.

(1) Risks Associated with Market Changes
The semiconductor and electronics component industries are subject to sharp and abrupt changes in market conditions in the short term, caused by factors such as the production trends of end-set manufacturers, which readily fluctuate according to the sales performance of electronic products, automotive products, and industrial equipment, as well as competition in prices and technology development with rival companies. Prices are especially susceptible to sudden drops due to the supply demand relationship, while competition from emerging Asian manufacturers tends to cause instability with regard to maintaining and increasing sales and ensuring profits.
(2) Exchange Risks
The ROHM Group has expanded its stronghold in global development, production, and sales. Therefore, the financial statements prepared in each local currency are converted into Japanese yen in order to prepare consolidated financial statements. Accordingly, even if the values in local currencies remain the same, the profits and losses on the consolidated financial statements may be affected by the exchange rates at the time of conversion. While conducting production activities in Japan, Asian countries, the US, and European countries, the ROHM Group sells its products on the global market. This means different currencies are used between production and sales bases, and consequently exchange rate fluctuations exert a continual influence on the ROHM Group. Generally, a strong Japanese yen conversion adversely affects our business performance, while a weak yen conversion has a favorable impact.
(3) Risks of Product Defects
As stated in the Company Mission, the ROHM Group places top priority on quality, and develops products subject to stringent quality control standards. However, this does not guarantee that defective products will never be produced or that claims arising from product defects will never be sought by buyers in the future. If a buyer should make a claim for defects regarding ROHM products, company performance may be adversely affected.
(4) Legal Risks
In order to manufacture products distinguishable from those of other companies, the ROHM Group develops various new technologies, cultivates expertise, and manufactures and sells products worldwide based on these proprietary technologies. The ROHM Group has a division that specializes in the strict supervision of in-house activities in order to ensure that the technologies and proprietary knowledge used by the Group do not infringe on the intellectual property rights of other companies such as patent rights. In addition , in all business fields in which the ROHM Group is involved, the Group complies with all relevant laws and regulations with respect to the utilization and handling of exhaust air, drainage, harmful materials , waste treatment, surveys on soil/underground water pollution, and the protection of the environment, health, and safety. However , the Group may incur legal responsibilities in this respect due to unexpected events, which may possibly have an adverse influence on financial results.
(5) Natural Disasters and Geopolitical Risks
The ROHM Group performs development, manufacturing, and sales activities not only in Japan but also worldwide. To distribute the associated risks, the Group locates production lines at different bases. However, these production bases may be damaged due to earthquake, typhoon, flooding, other natural disasters, political uncertainty or international conflicts. Financial results could be adversely affected by stalled product supply or considerable changes in electronics markets due to these unforeseen events.
(6) Mergers and Acquisitions Risks
The ROHM Group, taking into account future business prospects , considers it necessary to investigate and implement mergers and acquisitions worldwide with a focus on entering new fields that are relevant to our existing business, and to always make the utmost efforts to improve corporate value and expand the size of our business. In conducting mergers and acquisitions, we thoroughly study, review, and deliberate matters before any acquisitions are made. Nonetheless, due to unexpected circumstances or significant changes in market forces after an acquisition, an acquired business may not progress as expected and we may suffer losses in some cases as a result.
(7) Research and Development Risks
At present, new technologies and products are being developed and diffused in different electronics fields. ROHM Group, as a part of electronics related industry, continually faces stiff competition in technology and product development and therefore must exert ourselves day and night in the research and development of materials and products in order to produce new products and technologies. Consequently, our research and development expenditures in the year ended March 31, 2017 were approximately 11 percent of our consolidated sales.
In these research and development activities, plans may be considerably delayed, and the opportunity to introduce them into the market missed, for example, due to a lack of technical capabilities or the ability to develop new products. And, there is also the possibility that the new products we develop may not receive favorable acceptance by the market as anticipated. If this occurs, it may affect our business performance.
(8) Other Risks and Our Corporate Risk Management System
In addition to the above-mentioned risks, there are various other factors that may influence our financial situation and business performance,such as risks related to logistics, material and energy procurement,security leaks, information systems, and human resources. In response, the ROHM Group has been making company-wide efforts to enhance its risk management system in order to avert these risks and, in their event, minimize their impact. To identify, analyze,control, and manage significant risks that may arise in the course of executing business within the Group, ROHM organized the "Risk Management and BCM Committee" under the CSR Committee with the President serving as the chairman. Along with overseeing the activities of the main departments that control risks, the committee crafts and enforces across the company Business Continuity Plans (BCP) so that ROHM is proactive and prepared for possible risks.

Business Continuity Management

We have stated that part of our company mission is "to contribute to the advancement and progress of culture through a consistent supply, under all circumstances, of high quality products in large volumes to both the domestic and global markets." As the ROHM Group is conducting development, manufacturing and sales activities in various locations around the world, we believe that one key issue for the management of the company is to establish Business Continuity Management (BCM). We have therefore formulated the ROHM Group fire and disaster prevention policy for the implementation of activities. A part of this is the implementation of various measures to prepare for emergencies at our production sites in both Japan and overseas. For example, we identify the risks such as disasters and form countermeasure committees to handle them. We also propose Business Continuity Plans (BCP) and conduct training based on them.

Fire and Disaster Prevention Policy

"The policy shall be to prevent and be prepared for disasters by promoting the fire and disaster prevention based on the respect for the international norm, etc., and observance of laws and regulations."
The ROHM Group shall provide the safe and secure work environment and be prepared for emergencies, such as a fire, and also seek to prevent any disasters that possibly affect the business continuity through the continuous approach to the fire and disaster prevention.

Main Activity Topics

Action for Earthquake Risks

(1) ROHM Headquarters: Study meeting based on lessons learned from Kumamoto earthquake
In December 2017, we implemented a study meeting at ROHM Headquarters for employees to learn about damages caused by the disaster, and how the company has learned to take actions on rehabilitation and BCP activities from this earthquake experience.
Learning from the actual earthquake experience not only enabled employees to know better on how to handle disaster situations in the future, but also raised the overall level of the company's BCP awareness and response abilities to disaster risks.
(2) LAPIS Semiconductor Miyagi: Training based on the lessons learned from the Great East Japan Earthquake
As the date of the Great East Japan Earthquake, Miyagi production site has set March 11th as the Comprehensive Disaster Prevention Training Day to implement company-wide training including all the outsourced companies that are permanently stationed on the site.
The BCM Countermeasures Headquarters serves as the central role implementing this training. It conducted company-wide evacuation drills and established the Disaster Rehabilitation Headquarters to simulate the entire recovery process of the actual experience from the Great East Japan Earthquake, which allows employees to learn from real-life scenarios and know how to implement countermeasures against the risks of earthquakes in the future.
(3) ROHM Hamamatsu: Training and Facilities established based on the anticipation of Nankai Megathrust Earthquake
The Hamamatsu production site has defined that all employees on site have safely evacuated within 30 seconds of the Emergency Earthquake Alert was issued as the "Initial Evacuation". This evacuation drill to the "initial evacuation area" is conducted once a month based on the "Evacuation Conduct Guidelines", in order to ensure that all employees on site become familiar with any actions required for evacuation.
Furthermore, the code of conduct was formulated immediately within three weeks of the outbreak of earthquake on a daily basis, in order to build up the management system that could minimize risks caused by suspension of production and make it possible to move rapidly from the initial response to the rehabilitation work. The site is also working to minimize the damages by building facilities with Seismic Base Isolation structures to reduce the seismic force.
(4) ROHM Headquarters : Installation of a Seismic Base Isolation System in the Headquarters Server Room
At the ROHM headquarters, in order to mitigate the risk from seismic activities, a mirror site of the central system was developed and is operated so that in case of emergency at the headquarters, a system to switch operation over to the mirror site will become possible. In addition, installation of a seismic base isolator in the server room was completed in January 2017. ROHM will continue to be involved in implementing BCP measures.
Installation of a seismic base isolator in the server room

Action for Water Risks

(1) Identification of water risks by using the World Resources Institute's Aqueduct
The ROHM Group uses the "WRI Aqueduct" global evaluation tool as a tool to identify water risks.
Semiconductor manufacturing is an industry that uses large volumes of water, and the securing of sufficient water is a lifeline for it. All of our plants for the front-end processes (wafer processes) of semiconductor manufacturing are concentrated in Japan, and we have set the "risk of water shortages" as a priority issue in the country. We have set long-term targets up to FY2020 for the securing of the water intake and reduction of water use and are promoting a water intake plan that is linked to the production plan and environmental objectives.
At overseas plants performing later processes such as assembly and inspection, the "risk of flooding" has been identified as an issue. During the flooding in Thailand in 2011, group plants in the country were forced to stop production. This had a major impact both inside and outside the company due to the economic losses arising from the suspension of production and the loss of facilities and equipment. In addition to also using the "WRI Aqueduct" as a tool to evaluate the risk of flooding at each plant, the Risk Management and BCM Committee have also conducted risk evaluation and analysis. From the BCP perspective, measures have been implemented to disperse the risk of production suspension due to flooding by preparing a system (production plan and management) for the production of the same product at multiple bases in multiple countries and regions.
(2) Flood training based on the experience of flood at Thai factory site
In September 2016, ROHM conducted drills for the BCM countermeasures head quarter as preparation for flooding at our production site in Thailand.
Based on an action plan that was prepared by using the experiences of the flood that occurred in 2011, the implementation items were checked for hypothetical situations assuming "upstream flooding" and "flooding equivalent to that in 2011 with a flood wall in the industrial park being washed away." In addition, the following exercises were also conducted: flood wall assembly drills (prepared in case of flooding), drain pump operation drills, boat-handling training, checking of goods for use in case of flooding, and training on other necessary skills.
(3) Construction of factories that will withstand flooding in Malaysia
In October 2016, the ROHM Group's largest factories were completed at the site in Malaysia. Preparations are underway for the increase in diodes production along with the doubling production capacity of the existing factories. Learning from the flooding that occurred in 2014, the first floor height of the new factory was set at the mean sea level plus 5.1 meters. For the electrical power supply, a backup system was implemented by adopting a double power supply, and a system to prevent long-term operational suspension was developed.

Action for Fires and Other Risks

(1) Formation of self-defense fire-fighting teams, and fire and disaster prevention drill
As a preparation for disaster, ROHM has self-defense fire-fighting team and deploys small engine fire pumps, chemical protective suits, disaster prevention/fire protection clothes, and life-saving equipment, etc. according to each company's situation. ROHM also conducts practical training in firefighting and earthquake scenarios, drills for clean rooms that handle hazardous substances, and earthquake drills so that everyone can respond in times of disaster with quick and appropriate activities. ROHM actively participates in community fire drill contest and comprehensive evacuation drills in each area where the group has business operations, in order to cooperate in regional disaster prevention efforts. In October 2017, a total of 2,013 employees participated in a mass evacuation drill at the Headquarters as preparation for an anticipated earthquake.
(2) Fire and disaster prevention management system and internal fire protection patrols at ROHM Headquarters
The Fire Prevention Committee and its special committees operate patrols and hold meetings on "general fire prevention," "clean rooms," "hazardous substances," and "earthquake countermeasures." ROHM also strengthens fire prevention management by self inspections that include managers in charge of fire, persons in charge of fire extinguishers, persons in charge of earthquake countermeasures and others in each workplace as a way of reducing fire and disaster risks. People in charge of the Fire Prevention Committee at Headquarters conducted the fire protection patrol at other sites twice in a year.
(3) Production site in Thailand: Practical training on initial fire-extinguishing for local communities
In June 2017, production site in Thailand implemented classroom learning and training on initial fire-extinguishing for 64 people from local schools and temples. The fire prevention committee at the production base took a central role to implement these activities in response to feedback received during stakeholder dialogue with local residents. Through these kinds of activities, we will continue to promote countermeasures for fire prevention, not only by the company, but also by the region as a whole.

Risk Measures in Supply Chain System

ROHM continues to conduct surveys among business partners regarding alternate production methods, increased clarification of methods for procuring critical raw materials, and maintaining safety stock.
Moreover, the ROHM Group will continue to promote its approach to supply chain BCP through CSR procurement self-assessment tools, visits to verify the status of CSR procurement, and other initiatives.