Mitsubishi 2011 Annual Report Download - page 37

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 disaster, 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 conver-
sion 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 consoli-
dated 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, fluctua-
tions 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 consoli-
dated net sales during the fiscal year under review, changes in the
socioeconomic situation in Japan or any of the regions in which it
operates could affect MMC Group results.
Effect of interest rate fluctuations
There is a possibility that fluctuations in interest rates on borrow-
ings resulting from a change in financial market conditions in the
future will impact MMC results.
Effect of fluctuations in materials prices
The MMC Group purchases materials and finished parts and
components from many partners. Increased demand and other
changes in market conditions may cause materials and compo-
nents 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, espe-
cially price competition in the North American market, 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 col-
lateral in the sales finance unit.
Changes in laws and regulations
MMC abides by laws and regulations regarding the environment,
product safety, etc. in its various markets of operation. If any laws
and regulations were to be changed, or new rules issued, costs as-
sociated 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,
technology and price competition, procurement orders tend to be
focused on designated suppliers. Furthermore, specific technolo-
gies 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
protections 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.
MITSUBISHI MOTORS CORPORATION
Annual Report 2011 35