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short-term fluctuations in interest rates, but medium- to long-term
rises in interest rates can push up the costs of funding via corporate
bonds and other funding sources, which could in turn adversely
affect the business performance and financial position of the Group.
Exchange-rate fluctuations
Individual financial statements of overseas subsidiaries and equity
method affiliates of the Group are prepared using local currencies,
which are then translated into Japanese yen when the consolidated
financial statements are compiled. Therefore, even when there is
no major variation in business results on local currency basis, the
Group can suffer adverse effects on its business performance and
financial position at the time of translation into yen as a result of
changes in the exchange rate against the U.S. dollar, euro and
other currencies.
The Group carries out its manufacturing and sales activities
in countries all over the world (overseas sales accounted for 45.6%
of total sales for fiscal year 2012 on a consolidated basis). The
Group minimizes risk from short-term exchange-rate fluctuations
by using forward exchange contracts and similar instruments, but
substantial exchange-rate fluctuations over the medium-to-long
term could adversely affect the business performance and financial
position of the Group.
Raw materials procurement
The Group produces electric cables and many other items that
use copper as the main component. In setting the sales prices of
major products containing copper, risk of market price fluctuation
is avoided through the widespread industry practice of using the
prevailing copper price quoted on the London Metal Exchange.
However, this method is not used for setting the prices of certain
Group products containing copper, which means that any rapid rise
in cooper market prices could adversely affect the Group’s business
performance and financial position.
For the procurement of other raw and secondary materials
such as non-ferrous metals, steel and petrochemicals, the Group
is strengthening measures to purchase at more advantageous
terms, for example through joint purchasing. However, a rapid rise
in market prices or a sharp drop in the inventory prices of such
raw and secondary materials could adversely affect the financial
performance and business standing of the Group. Difficulty may
also be experienced in procuring needed volumes of rare metals
because rare metal deposits and suppliers are limited. Supplies of
such raw materials and secondary materials may also be difficult
to obtain in the needed volumes for reasons such as bankruptcy
of the supplier, natural disaster, war, terrorism, strike, and
transportation system failure.
Valuation losses on securities held for business
purposes
The Group holds shares in its trading partners with the purpose
of ensuring steady supplies of raw materials and stable business
relations with customers. As the Group does not hold securities
for the purpose of investment, it is exposed to a relatively low level
of risk from share-price fluctuation, but a rapid fall in the stock
market could erode the Group’s equity ratio.
Intellectual property
In addition to protecting its own technologies through the
acquisition of patents, design rights and other intellectual property
protection, the Group is scrupulous in its observance of other
companies’ intellectual property rights. However, circumstances
may arise in which it unwittingly violates the intellectual property
rights of another company due to diversification of product
configuration or manufacturing technology, expansion of overseas
business activities, and increased complexity of retail channels.
This could result in the Group being forced to suspend marketing
activities or make design changes. Further, because the necessary
protection cannot always be assured in cases where other
companies violate the Group’s intellectual property rights, due
to differences in legal systems and enforcement practices from
one country to another, the Group is unable to guarantee that its
products will win a significant share in overseas markets.
Information leakage
In the pursuit of its business activities, the Group holds a great
deal of personal and confidential information. The Group has
taken every possible measure to uphold confidentiality of such
information, but can offer no definitive guarantee that leakage
will not occur in the case of unforeseen circumstances. If such
circumstances arise, the Group’s business performance and
financial position could be adversely affected by harm done to its
reputation and damage claims.
Defective products and inferior services
Based on predetermined product quality standards, the Group
makes every effort to ensure the quality of its products and
services. However, in certain unforeseen circumstances, it cannot
rule out the possibility of the occurrence of product quality
problems leading to large-scale recalls and product-liability
compensation payments. If such circumstances arise, the Group’s
business performance and financial position could be adversely
affected.
Annual Report 2012
SUMITOMO ELECTRIC
39