Business Risk
Items that may have a significant impact on investor decisions are listed below. The forward-looking statements contained herein are based upon assessments by the Nippon Sheet Glass Group (hereinafter, “NSG Group”) as of March 31, 2006.
1. Economic conditions
Sales of NSG Group products are largely dependent on the Japanese and Asian markets. Conditions in the Japanese and global economies, as well as the economic environment impacting the business of our customers, tend to influence demand for NSG Group products, and the Group’s business results may be significantly affected thereby.
2. Fluctuations in business performance
Business performance of the NSG Group’s Information/Electronics Materials and Devices Business has fluctuated markedly in recent years. While the segment recorded operating income of \13,428 million in the fiscal year ended March 31, 2001, the segment then suffered operating losses of \5,697 million, 6,633 million and 924 million respectively in the fiscal years ended March 31, 2002, 2003 and 2004. These fluctuations are primarily the result of cyclical demand for NSG Group products, and such fluctuations in business performance may again be experienced at times in the future.
The Group is wholly reconfiguring the structure of the Information/Electronics Materials and Devices Business and aims to improve business results through the new business structure. However, there is no guarantee that future economic downturns in the industry will not have a significant impact on the business activities, business performance and financial conditions of the Information/Electronics Materials and Devices Business and the entire NSG Group.
3. Reliance on specific industries
The Flat and Safety Glass and Building Materials Business contributes over 60% of the Group’s sales to external customers, primarily based upon business with customers in the construction, housing and automotive industries. Conditions affecting the construction and automotive sectors in turn impact a number of corporations related to the construction and automotive components industries, including the NSG Group.
NSG strives to build a stable profit structure in the Flat and Safety Glass and Building Materials Segment by thorough cost reductions, in addition to development and expanded sales of high-value-added products. However, Group business performance and financial condition may be affected by economic cycles in the construction and automotive sectors.
4. Competition
The NSG Group is in competitive relationships with other glass product manufacturers in Japan and overseas. Moreover, the Group is in competition with manufacturers of other materials such as plastics and metals that are used in the construction, automotive and information and electronics industries.
The Group seeks to maintain a superior competitive position by introducing proprietary technologies and products to markets. The Group’s business performance and financial condition may be adversely affected, however, as a result of competitive circumstances.
5. New product development and technological innovations
In addition to focusing on the development of proprietary technologies and products in existing business fields, the NSG Group is also moving ahead with initiatives to develop new products in new business fields. Long time periods may be required for the new product development process, potentially leading to mounting expenses. Moreover, substantial investment of capital and resources may be necessary before new products contribute to sales. Investment in the development of new products may not generate sufficient earnings in the event that competing companies release new products to the market more rapidly than the Group. In addition, in the event that the Group is unable to predict or respond in a timely manner to changes in technologies, or does not succeed in developing new products suited to customer needs, the Group’s business activities, business performance and financial condition may be adversely impacted.
6. Future investment capital
The NSG Group may, in the future, need to procure additional capital for any or several of the following business activities: releasing new products; implementing business or research and development plans; increasing manufacturing capacity; acquiring complementary businesses, technologies or services; or repaying liabilities. In the event that the Group is unable to secure such capital in a timely manner and under favorable conditions, or cannot procure capital at all, the Group may not be able to invest for the expansion, development or strengthening of products and services, and may not be able to grasp business opportunities or to respond sufficiently to competitive pressures.
7. Overseas manufacturing
The NSG Group has manufacturing operations in several nations, including China, Taiwan and Vietnam. Several risks are inherent in conducting business in each nation, including political and economic conditions, as well as circumstances related to laws and regulations. These risks may impact the Group’s business results and financial condition.
8. Interruptions in production
The NSG Group conducts periodic disaster-prevention inspection and maintenance of all equipment to minimize the impact that would be incurred by the interruption of production operations. However, there is no guarantee that the Group can completely prevent or alleviate the impact of disasters (including earthquakes, power outages, and other disasters) or disruptions upon production equipment.
Moreover, the Group manufactures certain products that cannot be manufactured with equipment other than its own. Accordingly, the occurrence of severe earthquakes or other disturbances that lead to the temporary or long-time interruption of production operations may in turn cause sharp decreases in the production capacity of specific products. The Group’s business performance and financial condition may be affected accordingly.
9. Foreign exchange and interest rates
The NSG Group manufactures and sells products to customers around the world and faces numerous risks related to the fluctuation of foreign exchange and interest rates in the market where it is active. While the Group takes active measures to hedge against such risks, fluctuations in currency exchange and interest rates may affect the Group’s business activities, earnings performance and financial condition.
10. Insufficient pension reserves
In the event of decreases in the market value or return on investment of the NSG Group’s pension assets, or in the event of changes in actuarial assumptions for insurance that form the basis for postulations used to calculate projected benefit obligations, the Group’s business performance and financial condition may be significantly affected.
As of February 2006