Listed below are the principal business risks of Nippon Chemi-Con that may have a significant influence on operating results, stock price and financial status. All references to possible future developments in the following text were made by Nippon Chemi-Con Group as of June 27, 2008, the day we submitted financial statements.
Nippon Chemi-Con Group's principle business is manufacturing and sales of capacitors and other electronic components. Our business has expanded globally, covering regions including Japan, North America, Europe and Asia, and therefore, changes in the economic conditions of these regions and countries, where our products are sold, have the potential to impact the business results and financial position of Nippon Chemi-Con Group.
Products of Nippon Chemi-Con Group are sold not only in Japan but also in North America, Europe and Asia, and the proportion of consolidated net sales accounted for by overseas sales stood at 68.0% in the FY2006, and 71.7% in the FY2007. Although we forward exchange contracts to hedge the risk of exchange rate fluctuations, it is impossible to eliminate all such risk, and therefore such fluctuations may affect the business results of Nippon Chemi-Con Group. In preparing consolidated financial statements, those of our foreign affiliates are converted to JPY, however, even if prices remain unchanged in local currencies, yen translations may fluctuate and thereby affect our business results.
Emerging manufacturers from China and Taiwan are increasing cost competition in aluminum electrolytic capacitors, which is the core product among electronic components manufactured and sold by Nippon Chemi-Con Group. Although we deal with the intensified competition by reducing costs, developing high-value added products and reorganizing overseas production system, the increased competition at the lower end of the market may affect business results and financial position of Nippon Chemi-Con Group.
Increase in the purchase price of raw materials including aluminum foil and heavy oil may push up the cost of our products. Nippon Chemi-Con Group is taking risk avoidance measures such as continuously reducing costs by promoting local procurement at overseas manufacturers and improving productivity, however, rapid rise in the price of raw materials may influence the business results and financial position of Nippon Chemi-Con Group.
Nippon Chemi-Con Group manufactures products at world-wide production sites, in accordance with the internationally recognized quality control standard, however, we can not guarantee that all products will be totally free of defects. Although we are covered by product liability insurance, we can not guarantee that final compensation will be fully covered by insurance payouts. Nippon Chemi-Con Group is dedicated to strengthen the quality control, however, large-scale defects in its products may influence the business results and financial position of Nippon Chemi-Con Group.
Significant changes in laws and official regulations in regions both at home and overseas, where Nippon Chemi-Con Group operates its business, may influence the business results and financial position of Nippon Chemi-Con Group. Nippon Chemi-Con Group's business is subject to environmental regulations, and the significant changes in the regulations may pose the risk of environmental responsibility to Nippon Chemi-Con Group.
Halt in production caused by destruction of facilities and lack of power and water supplies, attributed to natural disasters or unpredictable events, may influence the business results and financial position of Nippon Chemi-Con Group.