FURUKAWA

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Business Risks

(1) Foreign Exchange Fluctuations
The Furukawa Company Group engages in production and sales activities in Japan and overseas, and therefore is at risk of foreign exchange fluctuations in connection with its export business, the import of raw materials, primarily copper ore, and smelting and processing income. While the Group utilizes foreign exchange contracts and other methods to mitigate this risk, its operating results and financial position may be adversely affected by movements in exchange rates.
(2) Fluctuations in Nonferrous Metals Markets
International prices of electrolytic copper, a mainstay product of the Group, and other nonferrous metals are decided by the London Metals Exchange (LME) in U.S. dollars to reflect international market conditions. Such prices fluctuate according to the international supply–demand balance, speculative transactions, international political and economic circumstances, and the like. The Group utilizes forward delivery transactions and other hedging techniques to minimize the impact of fluctuating LME prices. However, movements in such prices may adversely affect the Group's operating results and financial position.
(3) Interest Rates
The Group's fiscal year-end balance of interest-bearing liabilities (debt) was ¥73,507 million, equivalent to 35.3% of total assets. Any increase in debt-related costs arising from changes in interest rates may adversely affect the Group's operating results and financial position.
(4) Investment Securities and Land
Historically, the Furukawa Company Group has maintained relatively high balances of marketable securities and land. As of March 31, 2017, the carrying value of investment securities as stated in the balance sheets was ¥30,588 million, while land stood at ¥54,987 million. Accordingly, the Group's operating results and financial position are at risk of impairment losses, losses from devaluation, and losses on sales due to movements in stock and land prices.
(5) Retirement Benefit Obligation
The employees of the Furukawa Company Group are covered by defined benefit corporate pension plans, and non-contributory funded employee pension plans. Liability for retirement benefits are provided at an amount calculated based on the retirement benefit obligation and the fair value of pension plan assets at the balance sheet date. In calculating retirement benefit obligation, the Group adopts assumptions in connection with the discount rate and expected rate of return on plan assets, as well as other assumptions. Accordingly, the Group's operating results and financial position are at risk in the event the actual discount rate and expected rate of return on plan assets differs materially from the assumptions, as well as in the event of a change in the assumptions on which retirement benefit obligation are made.
(6) Earthquakes and Other Natural Disasters
Earthquakes and other natural disasters, as well as major accidents, could cause substantial damage to the Group's production facilities and procurement sources, leading to failure of its production equipment and distribution network. Such an event may prevent the Group from supplying products in a reliable manner, which could affect its operating results and financial position.
(7) Environmental Protection
The Furukawa Company Group places the highest importance on environmental protection, environmental safety, and prevention of pollution at its various business sites, both in Japan and overseas, respecting all laws and regulations. Furthermore, in Japan the Group is vigilant in preventing water run-off from idle mines from contaminating water supplies and in preventing the buildup of slag or slurry. However, in the event of changes in legislation and the like, there is a possibility that the Group's performance results and its financial position could be influenced.
(8) Official Regulations
The Furukawa Company Group engages in business in Japan and overseas and thus is subject to legal regulations of various nations, including rules related to licensing, taxation, the environment, labor, antitrust, and security. The Group takes care to faithfully comply with such official regulations, but the formulation of new regulations or amendments to existing ones may lead to increased costs and affect the Group's business continuity, which could affect its operating results and financial position.
(9) Country Risk
The Furukawa Company Group conducts its production, procurement, and sales activities on a global basis in order to expand its sales network, strengthen cost-competitiveness, and reduce currency risk. Any number of local events could hamper the Group's smooth business operations. These include local political unrest, sharp economic slowdown, trade sanctions, cultural and legal differences, special labor– management relations, and terrorism. Such events could affect the Group's operating results and financial position.
FURUKAWA COMPANY GROUP