Mitsubishi 2013 Annual Report Download - page 33

Business-Related Risks
Business-related risks for the MMC Group judged as being of material
importance to investors are outlined below.
Natural and other disasters
The MMC Group maintains production and other facilities in many
parts of the world. The occurrence of a major natural or other disas-
ter, such as an earthquake or typhoon, accidental fire or the outbreak
of contagious disease, may result in lengthy halts in operations or
other damage. The Group has in place business continuity plans and
disaster countermeasures that anticipate those risks considered the
most likely to materialize. However, a disaster on a scale beyond that
which is anticipated could have a negative effect on the Group’s
operating performance.
Issuance of common and preferred shares and effect on share
price
In June and July 2004, March 2005, and January 2006 MMC issued
several classes of convertible preferred shares. The conversion of
all Class B shares, series 1–3 (issued July 2004), has already been
completed, but the possible conversion of the remaining Class A & G
shares to common shares in the future will dilute the value of existing
common shares, and thus possibly influence the market price of
common shares.
Effect of foreign exchange rate fluctuations
Overseas sales accounted for approximately 80% of the consolidated
sales of MMC for the period. MMC endeavors to minimize the risk
involved in foreign currency receivables and payables through foreign
currency derivative contracts. However, fluctuations in the foreign
exchange markets still may have an impact on MMC results.
Effect of socioeconomic situations
As overseas sales accounted for approximately 80% of consolidated
net sales during the fiscal year under review, changes in the socio-
economic situation in Japan or any of the regions in which it operates
could affect MMC Group results.
Effect of interest rate fluctuations
As of March 31, 2013, the Mitsubishi Motors Group’s balance of
interest-bearing debt on a consolidated basis amounted to ¥364.4
billion. There is a possibility that fluctuations in interest rates on bor-
rowings resulting from a change in financial market conditions in the
future will impact Mitsubishi Motors results.
Effect of fluctuations in materials prices
The MMC Group purchases materials and finished parts and com-
ponents from many partners. Increased demand and other changes
in market conditions may cause materials and components prices to
increase, thus raising MMC’s manufacturing costs and resulting in an
impact on MMC results.
Leasing, financial services and sales incentives
Overcapacity in the auto industry, and fierce competition, especially
price competition, has led to the necessity of sales incentives in sales
promotion efforts. The sales incentives MMC uses in promotions
reduce the selling price of new vehicles. It is possible that the use of
incentives will lower resale values in the used car market and residual
values evaluated for vehicles returned at the end of leases. If vehicle
residual values decrease, there could be a negative impact on future
business performance. The decline in residual values could also put
downward pressure on car and lease assets held as collateral in the
sales finance unit.
Changes in laws and regulations
MMC abides by laws and regulations regarding the environment, prod-
uct safety, etc. in its various markets of operation. If any laws and regu-
lations were to be changed, or new rules issued, costs associated with
implementing these changes would have an impact on MMC results.
Alliances with other companies
As part of its efforts to develop its business the MMC Group forges
alliances with Japanese and overseas automakers, as well as other
companies. Accordingly, Group operating performance could be
affected by situations specific to its alliance partners, and for reasons
that the Group cannot control.
Impact of relying on designated suppliers
The MMC Group procures raw materials, parts and other inputs from
a host of suppliers. To ensure high levels of product quality, technol-
ogy and price competition, procurement orders tend to be focused on
designated suppliers. Furthermore, specific technologies required to
manufacture parts and other inputs tend to be concentrated among
certain suppliers. Accordingly, if for some unforeseen reason the
flow of suppliers from a supplier should cease, the Group’s operating
performance could be affected.
Effect of intellectual property rights violations
The MMC Group holds technical expertise, know-how and other
intellectual property that differentiates its products from those of its
competitors, and the Group works to prevent infringement on the
intellectual property rights of third parties. If despite these protec-
tions a third party were to wrongfully infringe on the MMC Group’s
intellectual property by manufacturing or selling similar products
or if legal protection of the Group’s intellectual property in certain
countries should be deemed limited, the Group’s sales could decrease
and the Group could incur litigation expenses. By the same token,
the Group could be forced to halt production and sales in event that
it inadvertently encroaches on the intellectual property rights of third
parties, and could be liable for damages. Such situations could affect
the Group’s operating performance.
Impact of lawsuits
In the course of business, the possibility exists that lawsuits will arise
between the Group and its business partners or third parties. In the
event the legal proceedings on issues in dispute are settled differently
than the Company asserts or expects, the operating performance of
the Group could be affected.
In February 20, 2010, MASRIA Co., Ltd. (hereinafter, the
“Plaintiff”), a company that formerly conducted sales for Mitsubishi
Motors in Egypt, brought a suit claiming US$900 million in damages
stemming from the cancellation of its sales contract with Mitsubishi
Motors. The Plaintiff’s claim was dismissed at a court of first instance
in October 26, 2010 and in a court of appeal in July 3, 2012. The
Plaintiff again appealed this ruling in a supreme court on July 21,
2012, and appeal hearings are currently pending.
Mitsubishi Motors maintains that its notice of contract cancellation
was conducted lawfully, and that the Plaintiff’s claim is irrational.
Consequently, at present we believe that this suit will have no major
impact on the Company’s operating performance.
MITSUBISHI MOTORS CORPORATION
Annual Report 2013 31