The majority of sales in the Noritz Group are within Japan, and a domestic recession and accompanying decline in demand could have a negative impact on the group's business results and financial situation.
State of Market Competition
Competition has become more intense in the housing equipment industry. Plus, the competition between different energy sources has a direct impact on business, as demand fluctuates in gas and kerosene water heaters. Under such circumstances, the Noritz Group is working to develop high-value-added products to boost its competitive strength in the marketplace. However, future increased competition from rival firms could have a negative impact on the Noritz Group's business results and financial situation.
Price Fluctuations in Raw Materials
To reduce the impact on the Noritz Group's business results and financial situation from market fluctuations, we are working to reduce costs and effect a shift to products that offer high added value. A sudden rise in prices of raw materials, however, could still have a negative effect on the Noritz Group's business results and finances.
The Noritz Group follows quality control standards in manufacturing products that are recognized both in Japan and in the countries in which we do business. However, with a number of carbon monoxide poisoning accidents involving water heaters coming to light in 2006, a manufacturer must be responsible not only for conventional product liability, but also product safety in installation and follow-up service.
There is no guarantee in the future that a serious accident will not occur involving our products, installation or follow-up service, resulting in costs related to a recall or other follow-up. We have product liability insurance, but in the end there is no guarantee that all costs related to manufacturer responsibility will be covered.
If a major accident involving a product, installation or follow-up service of ours were to occur, it could have a negative impact on the group's business results and financial situation.
International Business Expansion
The Noritz Group's international business is growing year by year, and with it the risks associated with currency exchange rate fluctuations. To cope with exchange risks we employ forward exchange contracts, but there is no guarantee that all exchange risk can be avoided. If a major, unexpected fluctuation in the exchange rate were to occur, it could have a negative impact on the group's business results and financial situation.
We have group companies in China, Hong Kong, North America, and Australia as well as branches or offices in Europe. In these overseas markets there are political and/or economic risks such as unexpected and disadvantageous changes in laws, regulations, and taxation systems, not to mention the risk of social unrest, such as terrorist incidents or armed conflict. Were such events to occur, they could have a negative impact on the Noritz Group's business results and financial situation.
If the Noritz Group's manufacturing plants or other facilities were to suffer devastating damage from a major typhoon, earthquake, or other natural disaster, or from a fire or other accident, such an event could hinder operations and have a negative impact on the group's results. The possibility also exists that huge costs could be required to repair the manufacturing facility or to conduct substitute manufacturing.
Asset-Impairment Accounting for Fixed Assets
The booking of an impairment loss can be anticipated as a result of the movement of land prices and according to the profitability of certain fixed assets, which could have a negative impact on the Noritz Group's results.
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