Operational and other risks faced by Toray Group that could have a major influence on the decisions of investors are described below. Toray Group works constantly to avoid such potential risks, minimize their impact, and build a system to enable swift responses and accurate information disclosure on the occurrence of unforeseen situations.
Please note that the risks described below are those identified by Toray Group, and do not represent all the operational and other risks that could affect Toray Group.
1. Domestic and overseas demand and market trends
As a supplier of basic materials to a broad range of industries,Toray Group is exposed to various factors that could cause a sharp drop in demand for its products. These include changes in both worldwide and regional supply-demand conditions, increased use of substitute materials, and changes to the purchasing policies of business partners. In addition to severe competition with other companies, Toray Group’s various businesses also face the risk of new players entering the market. Price fluctuations, stemming from the reduction of National Health Insurance (NHI) drug prices and reimbursement prices, also affect the pharmaceuticals and medical products business. Although Toray Group takes steps to maintain its competitive advantage, a decline in demand for, or falling prices of, such items, or the appearance of a credit risk affecting Toray Group’s business partners, could have a negative impact on Toray Group’s results of operations and financial conditions.
2. Rising prices of fuel and raw materials
The prices of petrochemical raw materials and fuel used by Toray Group are subject to significant fluctuations. If Toray Group is unable to fully pass the increases in such prices on to its product prices, or cannot raise its product prices due to lack of progress in shifting to high-value-added products, its results of operations and financial conditions could be negatively affected.
3. Capital expenditures, joint ventures, alliances and acquisitions
Toray Group makes capital expenditures in a wide range of business fields. Its other activities include formation of various joint ventures or strategic alliances with third parties, as well as business acquisitions.
When Toray Group becomes involved in capital expenditures, joint ventures, alliances and acquisitions, it considers the potential for profitability and return on investment. However, there is not necessarily any guarantee that the outcome will be consistent with expectations. If unforeseen market changes or significant discrepancies between actual results and initial business plans occur due to sudden changes in the operating environment, there could be a loss on impairment of fixed assets or equity in losses of unconsolidated subsidiaries and affiliated companies. As a result, Toray Group’s results of operations and financial conditions could be negatively affected.
4. Foreign currency, interest rate and securities market fluctuations
Foreign currency exchange rate fluctuations affect Toray Group’s consolidated financial statements when the financial statements of the overseas operations presented in local currencies are translated into yen. Toray Group takes measures, such as entering forward exchange contracts, to alleviate risks associated with transactions denominated in foreign currencies. However, unforeseen exchange rate fluctuations could have an impact on Toray Group’s results of operations and financial conditions.
Moreover, changes in interest rates and other aspects of financial markets, as well as changes in the value of securities and pension assets held by Toray Group, may have an impact on Toray Group’s results of operations and financial conditions.
5. Changes in assumptions on which forecasts are based that might affect employee retirement benefit obligations and deferred tax assets
Toray’s consolidated financial statements contain employee retirement benefit obligations based on future pension payments calculated in accordance with certain criteria, as well as deferred tax assets stated according to likely tax refunds based on taxable income estimates for the future fiscal years. However, if changes in the criteria used to calculate pension payments were to occur, or if fluctuations arose in the estimates of future taxable income, Toray Group’s results of operations and financial conditions could be affected.
6. Overseas operations
Toray Group is developing a broad geographical presence, with operations in various countries of Asia, Europe and the Americas. Some of the major potential risks associated with various regions are summarized below. If such risks were to become reality, Toray Group’s results of operations and financial conditions could be negatively affected.
— Unforeseen introduction, changes or abolition of laws and regulations such as changes in taxation systems
—Unforeseen economic or political events
—Social upheaval, including acts of terror or war
7. Product liability
Toray Group strives to supply the world’s best-in-class product quality. However, it cannot always guarantee against a major unforeseen quality problem. If quality-related serious situations were to occur, Toray Group’s results of operations and financial conditions could be negatively affected.
In the course of conducting its wide range of business activities, Toray Group faces the risk of being targeted by legal action pertaining to various matters such as intellectual property, product liability, environment and labor issues. If Toray Group were subject to a major lawsuit, its results of operations and financial conditions could be negatively affected.
9. Laws and regulations, taxes,competition policies and internal controls
Various laws and regulations apply in the countries and regions where Toray Group conducts its business. These laws and regulations include regulations related to the environment, commercial trading, labor, intellectual property, taxation and foreign exchange, investment approval protocols and import/export controls, and policies on competition based on antitrust laws. Through the establishment and maintenance of internal control systems, Toray Group endeavors to comply with all such laws and regulations. However, changes to such laws and regulations, including the introduction of new environmental regulations and taxes, as well as changes to the corporate income tax rate could affect Toray Group’s results of operations and financial conditions. Also, if Toray Group is judged as having violated such laws and regulations, is subject to government sanctions initiated by a fair trade commission, receives a notice of correction from tax authorities, has an employee who engages in illicit behavior, or is unable to uphold internal controls pertaining to financial statements, its results of operations and financial conditions could be negatively affected.
10. Natural disasters and accidents
Toray Group places top priority on safety, accident prevention and environmental preservation. To minimize losses caused by the suspension of production, Toray Group conducts regular accident prevention inspections, maintenance of its manufacturing facilities and safety activities. However, the advent of a major natural disaster or unprecedented accident could cause damage to Toray Group’s manufacturing facilities, or could cause inadequate supply of raw materials, which could have a negative impact on its results of operations and financial conditions.