Brother International 2014 Annual Report Download - page 19

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As a result of these activities, as well as the exchange rate fluctuations affecting the yen conversion value of cash and cash equivalents of overseas consolidated subsidiaries,
cash and cash equivalents as of March 31, 2014, amounted to ¥68,935 million, an increase of ¥13,875 million from the previous fiscal year-end.
Outlook for Fiscal 2014
Despite lingering concerns of an economic slowdown in China and other emerging nations, expectations are building that the economies of Japan and other developed nations will
undergo modest growth in fiscal 2014.
In this climate, we are projecting year on year growth in net sales. Along with continued brisk demand anticipated for Brother products, especially in the Printing & Solutions
business, we will aggressively enact a range of sales expansion measures in each business and operational region.
Operating income is projected to grow for the year, with positive exchange rate effects likely to trump factors putting downward pressure on earnings, such as increased invest-
ment in sales and development for future growth, and higher depreciation expenses. Similarly, we are projecting significant growth in net income for the year, mainly from the
posting of extraordinary income due to the sale of fixed asset, and a lower tax burden, reflecting the impact of tax effect accounting.
Business and Other Risk
The following items may impact the Group businesses, operating performance and financial conditions. Forward-looking statements reflect the Group’s judgment as of March 31,
2014.
(1) Market Competition
In printing and other operations, the Brother Group cultivates business in many markets where it faces stiff competition. Competitors could allocate more management resources
to their business than the Group does, new competitors could enter the market and competition could intensify as a result of alliances or collaboration among competitors. As a
result, the Group may be unable to maintain its current market share, adversely affecting Group’s performance.
(2) Acquisition of Human Resources
The Brother Group works to secure needed human resources for each function related to global expansion in projects, development, design, manufacturing, sales and services.
However, competition for human resources is rising. In the event that ongoing recruitment and employment of skilled human resources becomes more difficult, the Group may
become unable to invest sufficient resources in research and development, which could lead to lowered competitiveness and stable supply of products caused by a workforce
shortage. These factors could in turn affect Group performance adversely.
(3) Intellectual Property Rights
We conduct business operations by concluding license agreements with other companies on patents and other intellectual property rights as necessary. The balance of royalty
revenues and payments based on such license agreements could cause fluctuations in the Group’s operating performance and also become constraints on business operations
depending on the terms of such agreements. Furthermore, there are limits to the degree to which proprietary technology acquired through research and development can be
protected, and the potential exists for third parties to infringe upon our intellectual property rights and manufacture and sell counterfeit products. Other companies may file lawsuits
against the Group with regard to intellectual property rights, which could affect the Group’s performance. The Group provides appropriate rewards to in-house inventors based on
the Invention Incentive Scheme. Despite this, there is the possibility of litigation with inventors over compensation.
(4) Product Quality Control
To provide high-quality, attractive products, the Group has established a production management system with rigorous product quality control standards. Similarly, the Group
applies the same quality control standards to products from outsourced manufacturers, verifying that these products exhibit appropriate levels of quality. However, not all products
are free from defects, and there is no guarantee that no problems will arise as a result of product safety or quality issues. In the event that significant problems arise, substantial
costs may be incurred, brand image and reputation may deteriorate, and customer willingness to purchase Group products may fall, adversely affecting Group’s performance.
(5) Exchange and Interest Rates
The Brother Group conducts a high percentage of its manufacturing and sales overseas, and exchange rate fluctuations could affect foreign currency transactions. To reduce this
risk and improve the link between foreign currency transaction receipts and payments, the Group utilizes forward exchange contracts and other instruments to reduce short-term
risk. However, currency appreciation in China, Southeast Asia or other regions where the Group operates major manufacturing facilities could cause procurement and production
costs to rise, and mid- to long-term exchange rate fluctuations could affect its financial condition.
To reduce interest rate fluctuation risk, the Group endeavors to raise funds at fixed interest rates, and employs interest rate swaps and other financial instruments.
Nevertheless, higher market interest rates could raise fund procurement costs.
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities
-30.8
-41.8
-14.1 -6.4
-40
-15
10
35
60
39.3 32.7
Cash Flows
(¥ billion)
Fiscal years ended March 31
20132012
-39.1
-13.4
55.0
2014
Management’s Discussion and Analysis