Several risk factors could affect the Nippon Paper Group’s business performance and financial position.
(1)
Product demand and market conditions
The activities of Nippon Paper Group are divided among four business divisions-the mainstay pulp and paper division‚ the paper-related division‚ the housing and construction materials division‚ and the other division. Products of these divisions are subject to the risk of fluctuations in demand depending on macroeconomic circumstances and the risk of fluctuations in product prices based on market trends.
(2)
Manufacturing conditions
Nippon Paper Group manufactures products based on forecasts that account mainly for demand and the production capacity of current facilities. We inspect all equipment on a regular basis to assure against accidents‚ but we still face the risk of fire‚ equipment failure or faults, interruption of raw-material and fuel supply‚ and other unforeseeable occurrences impairing our ability to supply product.
(3)
Foreign exchange
Nippon Paper Group’s import and export operations are subject to foreign exchange risks. Expenditures for raw-material and fuel imports are higher than revenues from product exports. The yen’s depreciation against the US dollar as well as Australian dollar could negatively impact on our performance. We use foreign exchange forward contracts and other instruments to hedge against this risk.
(4)
Raw-material and fuel prices
Nippon Paper Group is exposed to fluctuations in the prices of raw materials and fuels it procures in international and domestic markets.
(5)
Stock prices
Nippon Paper Group is exposed to the risk of fluctuations in the prices of marketable securities it owns‚ primarily stocks in partnering and affiliated companies. Stock prices can also influence our pension costs via downstream fluctuations in pension-asset values.
(6)
Interest rates
Nippon Paper Group is subject to the risk of fluctuations in interest rates associated with interest-bearing debt.
(7)
Overseas business
Nippon Paper Group is involved in the manufacture and sale of paper and pulp products‚ afforestation‚ and other businesses in overseas markets‚ primarily in North America‚ Northern Europe‚ China‚ and Australia. Though we work to evert risks associated with overseas businesses‚ unforeseen circumstances could affect our performance and financial position.
(8)
Litigation
Nippon Paper Group is committed to complying with all laws and regulations in conducting its business affairs; nevertheless‚ we are subject to the risk of litigation in conjunction with criminal and civil issues‚ anti-monopoly laws‚ product liability laws‚ intellectual property rights‚ and environmental‚ labor‚ and other issues.
(9)
Fixed asset impairment
Nippon Paper Group exposed to risk associated with decreases in the value of its fixed assets‚ primarily property‚ plant‚ and equipment.
(10)
Natural disaster
Nippon Paper Group could incur expenses associated with restoring facilities or opportunity losses resulting from production shutdowns in the event that manufacturing or logistics facilities are damaged in an earthquake or other natural disaster.
(11)
Other changes in the business environment
Nippon Paper Group is subject to risks associated with shifts in its business environment arising from contingencies other than those mentioned above.
