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Management Information

Operational Risk

1. Risk Associated with New Businesses

Nisshinbo Group is actively undertaking various new businesses with the aim of expanding sales and earnings, however, many uncertainty remain regarding new businesses. There also be possibilities that we cannot create appealing products or the creation of new markets will not proceed in accordance with our assumptions. In that case, it might be longer-than-expected or impossible to recoup the investments.
We are working toward the commercialization of bipolar plates for integration into fuel cell vehicles for the future. On the other, we have already broken into portable fuel cells, which have been in extensive national experimental stage for general houses, and won high acclaim as carbon-type bipolar plates. Portable fuel cells are expected to become widely used on and after 2009.
Regarding electrical double layer capacitors, we have solid prospects for commercialization and  have already had the ability to provide modules as original target. We continuously advance development in alliance with our group companies, Japan Radio Co., and Nagano Japan Radio Co., However, it may take a little while for automobiles to be equipped with capacitors.

2. Risk due to Fluctuations in Investment and Marketable Securities

Marketable securities held by Nisshinbo are stated at market value in accordance with Standards for Accounting for Financial Instruments, and we have recorded impairment losses on some of these securities based on our more-strict internal standards. Under our current accounting procedure of including the entire amount of impairment losses in shareholders’ equity and based on our standards for impairment losses, we foresee little possibility that impairment losses will have a material effect on the Company’s Statements of Income given that the overall acquisition cost of these securities remains low. However, a change in accounting standards that requires impairment losses be reflected in the Statements of Income could also result in significant increases or decreases in profits or losses in each fiscal year. Moreover, we plan to convert marketable securities into cash to fund our future investments for M&A, investments for overseas business development and capital investment, and intend to curb any increases in interest-bearing debt. Nevertheless, there is a possibility that the actual situation could differ from this plan if the timing of the selling and investment periods are misaligned.
In 2000, Nisshinbo made a ¥14.7 billion trust contribution to cover a loss that resulted from a change in accounting for employee retirement benefit obligations. At the end of the fiscal year ended March 31, 2005, this trust contribution had a valuation profit of ¥4.6 billion. Nisshinbo amortizes this trust evenly over an average service period of employees of 15 years. Nonetheless, retirement benefit obligation costs have an impact upon net profit and loss by fluctuations in stock prices. Although the effects of current market valuations on trust stock are reflected in the Statements of Income, the trust is amortized over 15 years and gains and losses are averaged over each period, and thus, we foresee no significant impact on profits or losses in a fiscal year.

3. Risks Associated with the Utilization of Idle Land

In order to transform the Company’s business structure, we are aggressively pursuing the utilization of land following the closure of a portion of our business sites in order to contribute to cash flows generated by income via redevelopment. While the sale of a portion of this land is being considered, lower land prices have the potential to reduce sales profits. In redeveloping idle land, it is also possible that costs related to environmental cleanup will be incurred, and that redevelopment may be hindered by legal revisions or other factors.

4. Risk Associated with Product Quality

The major portion of the Nisshinbo Group’s products is manufactured based on quality control criteria in accordance with international standards. However, Nisshinbo cannot guarantee that a quality control problem will not emerge in the future. Although we are covered by product liability insurance, the incurring of a large amount of compensation liability could have an adverse effect on Nisshinbo’s business results.

5. Risk due to Market Fluctuations in Product Sales Prices and Procurement of Raw Materials

Some products of the Nisshinbo Group are significantly affected by changes in market prices that accompany trends in market conditions and competition with other companies. The sales prices of textile and paper products and such procured raw materials as raw cotton, pulp and steel materials are particularly subject to these trends. Moreover, because raw cotton and pulp are imported raw materials, the effects of currency exchange rate fluctuations on these materials are unavoidable.

6. Risk Associated with the Electronics Business

In December 2005, New Japan Radio Co., Ltd. became a Nisshinbo Group subsidiary, which led to a sharp increase in sales and income for our electronics business. New Japan Radio is stable given that its main business centers on analog semiconductors, but demands for price cuts or changes in semiconductor market conditions could lead to fluctuations in income. Further, as overseas net sales account for nearly 50% of New Japan Radio’s consolidated net sales, fluctuations in exchange rates could have a bearing on results.
In making stronger inroads into the car electronics field, it is possible that earnings will be temporarily depressed due to investment burdens generated to secure greater income in the future.

7. Risk Associated with Overseas Business

The Nisshinbo Group operates numerous overseas production bases. In doing so, however, the Group is exposed to such inherent risks as unforeseen changes in laws and regulations, disadvantageous political and economic factors and social upheaval.

8. Risk due to Fluctuations in Corporate Customer Business Results

The customers of the Nisshinbo Group’s Automobile Brakes business are automakers that undertake operations globally. Thus, there is a possibility that Nisshinbo’s business results could be affected by factors beyond the Group’s control that include requests for sharp price reductions and unforeseen cancellation of contracts by corporate customers due to fluctuations in their business results.

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