Business and Other Risks
The following risks may have a material impact on the decision-making of investors with regard to information on business and financial conditions included on this website. Forward-looking statements contained in this report are based on the judgment of the Group as of March 31, 2013.
Risk Associated with General Operating Activities
1. Dependence on Specific Customers
The Group consists of the Company, its 679 subsidiaries, and 257 affiliates. The main business line of the Group is the sale of automotive-related and other products in the Japanese and overseas markets. In the fiscal year ended March 31, 2013, the Company's sales to the Toyota Group* accounted for 13.4% of net sales, with sales to Toyota Motor Corporation representing 6.0% of net sales. Therefore, trends in the automobile output of Toyota Motor Corporation may affect the operating results of the Company.
- *Toyota Motor Corporation, Toyota Industries Corporation, Aichi Steel Corporation, JTEKT Corporation, Toyota Auto Body Co., Ltd., Aisin Seiki Co., Ltd., Denso Corporation, Toyota Boshoku Corporation, Toyota Motor East Japan, Inc. (formerly Kanto Auto Works, Ltd.), Toyoda Gosei Co., Ltd., Hino Motors, Ltd., and Daihatsu Motor Co., Ltd.
2. Risk Associated with Customers' Credit
The Group faces a degree of risk arising from the collection of receivables associated with the diverse commercial transactions of our domestic and overseas business customers. While the Group retains an allowance for doubtful receivables based on certain assumptions and estimates concerning customers' creditability, value of pledge, and general economic situation, until customers complete the fulfillment of their obligations there is no guarantee that customers will be in a sound financial condition to complete the repayment of debts.
3. Risk Associated with Commodities
Commodities that the Group handles in its businesses, such as nonferrous metals, crude oil, petroleum products, rubber, food, and textiles, are vulnerable to risks arising from price fluctuations. While the Group takes various measures to reduce such price fluctuation risks, it may not be possible to completely avoid them.
4. Risk Associated with Business Investment
The Group intends to grow existing businesses, enhance functions, and enter new businesses through the strengthening of current partnerships or establishment of new partnerships with companies. To this end, the Group has established new ventures in partnership with other companies and has also invested in existing companies, and may continue to conduct such investing activities. However, the Group may lose all or a significant part of such investments or be obliged to provide additional funds in the event of a decline in the corporate worth or market value of the shares of invested companies. In such cases, the financial condition and/or results of the business operations of the Group may be adversely affected.
5. Risk Associated with Fluctuations in Interest Rates
A portion of interest-bearing debt of the Group is based on variable interest rates. For a considerable portion of such debt, we are able to absorb the effect of changes in interest rates within working capital. However, a portion of interest-bearing debt cannot be hedged against the risk of market fluctuations and is susceptible to risk associated with fluctuations in interest rates. The results of the business operations of the Group may therefore be affected by changes in future interest rates.
6. Risk Associated with Exchange Rates
Of the product sales, investment, and other business activities conducted by the Group, transactions denominated in U.S. dollars or other foreign currencies may be affected by changes in exchange rates. While the Group takes measures to mitigate the impact of such risks, it may not be possible to completely avoid them.
7. Risk Associated with Countries
The Group conducts many transactions with foreign counterparts, including foreign product transactions and investments in foreign customers. Therefore, the Group is exposed to risks arising from the manufacturing and purchase of foreign products, such as regulations imposed by foreign governments, political uncertainties, and fund transfer restraints, as well as loss on investment or reduced asset value. Furthermore, export and import activities of the Group are generally affected by competitive conditions arising from international trade barriers, trade conflicts, free trade agreements, and multilateral agreements. While the Group endeavors to avoid the concentration of its business on specific regions or countries, there is the possibility that future losses will be incurred in specific regions or countries which may impact the overall performance of the Group.
8. Competition in Export and International Trade
Major export and other international trade of the Group are conducted in a fiercely competitive environment. The Group competes globally with domestic and overseas manufacturers and trading companies operating in international markets. Some of these competitors possess merchandise, technologies, and experience superior to that of the Group. Thus, there is no guarantee that the Group will continually maintain a competitive edge.
9. Environment-related Risks
The Group is engaged in businesses in Japan and overseas that are exposed to a broad range of environment-related risks. To mitigate these risks, the Group conducts risk management throughout its supply chain. Specific activities include promoting traceability in the food domain and enforcing compliance with laws and regulations concerning the handling of hazardous chemical substances in the chemical products domain. Furthermore, the Group's businesses in Japan and overseas are susceptible to various environmental risks associated with waste disposal and other factors. The Group could conceivably incur additional costs in these businesses, due to changes in environmental regulations, environmental pollution caused by natural disasters and other events, or other factors. These and other factors may affect the Group's business performance.
Effect of Natural Disasters and Other Events
The Group conducts sufficient reviews and training regarding the establishment and operation of disaster response organizations in order to safely and rapidly deal with conceivable natural disasters such as fires, earthquakes, and floods. For example, as an initiative to minimize the impact of earthquakes and other events on the Group's business operations, the Group conducts inspections and surveys of the seismic-resistance of its facilities and takes other appropriate measures as necessary.
However, a large-scale natural disaster may still have an impact on the Group's business operations.