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Business Risks

FOR INVESTORS IR Information

Business Risks

The Annual Securities Report carries information on matters including those concerning the status of the KBK Group’s business and finances. Of these, those matters that may significantly influence the decisions of investors are shown below. Please note that all forward-looking statements represent the judgement of the KBK Group as of the day when the Annual Securities Report was submitted.

(1) Risk stemming from the effects of the macroeconomic environment

The KBK Group conducts global business operations, and derives approximately 30% of its net sales from export and import transactions and overseas transactions. Accordingly, the KBK Group is affected by the economic situation and trends of the purchasing country, supplying country or region of our products and services, and market in each country. Since export and import transactions with China account for a large share, the economic downturn and economic trends in the Chinese market may adversely affect the KBK Group’s business results and financial condition.

(2) Foreign exchange risk

Foreign currency denominated settlement in export and import transactions and overseas transactions by the KBK Group involves the risk of fluctuations in foreign exchange rates. Although the KBK Group hedges against such risk by means of foreign exchange contracts, there is no guarantee that the KBK Group can entirely avoid such risk.
In addition, since foreign currency denominated items including purchases and sales, expenses and assets stemming from transactions between the KBK Group and foreign companies are translated into yen, the value of these items in yen may be affected by the exchange rate at the time of translation.

(3) Risk related to products

In the event that the KBK Group imports products and sells them in Japan, the KBK Group may be held liable in connection with product liability (PL) and may also be subject to claims for compensation for product defects at the export destination in the case that products are exported. Although the KBK Group hedges against such risk by means of PL insurance, there is no guarantee that such insurance can fully cover the final amount of damages. As it is conceivable that the amount of damages will be significant depending on the type of defects, the KBK Group’s business results and financial condition may be adversely affected.

(4) Risk related to investment

The KBK Group has entered a variety of business fields though third-party joint ventures and investment in third parties. However, the progress of such businesses may be difficult to predict because, in some cases, it depends on factors beyond the control of the KBK Group, such as the business results and financial position of the concerned business partner. As a result, the KBK Group may incur serious losses, which in turn may adversely affect the KBK Group’s business results and financial condition.

(5) Country risk

Business operations in overseas markets, such as overseas transactions, investment, capital and business alliance, are expected to entail risks stemming from changes in laws and regulations, political instability, unfavorable tax systems and economic factors, terrorism, war and other social turmoil due to the environment, economic climate and various circumstances of each country and region.
In addition, problems may arise in payment collection and business execution, due to unexpected events such as changes in the political situation, legal environment and tax systems, securing of manpower, and changes in economic conditions in countries in which the KBK Group conducts business activities.

(6) Risk related to competition

In the markets for the products and services provided by the KBK Group, competition has intensified in recent years due to existing competitors as well as progress in technological capabilities and the distribution of low-priced products especially in emerging countries. Even in this harsh environment, the KBK Group plans to further enhance its technological capabilities as an engineering trading company group and provide greater added value to customers in an effort to strengthen its profitability, while expanding business operations based on the overseas strategy and Group strategy. However, if the KBK Group is unable to provide products and technologies at competitive prices required by customers amid low-price competition and an increase in newcomers, the KBK Group’s business results and business operations may be adversely affected.

(7) Risk related to change in the time of recording of sales and concentration of business results

Since the timing of recording net sales of the KBK Group changes according to the acceptance inspection period of customers and other factors, the timing may change from the initial plan. With regard to major projects for delivery of machinery or facilities and projects for government agencies in particular, delivery tends to be concentrated at the fiscal year-end in March. Accordingly, the postponement of delivery of projects scheduled for March and the acceptance inspection period of customers to the following fiscal year due to certain reasons, or the failure to receive orders for projects expected to be delivered in March, may adversely affect the KBK Group’s business results of the fiscal year under review.

(8) Risk related to securing of executives and employees

In the KBK Group’s business activities, the identification of engineering and advanced technologies largely relies on the abilities of executives and employees. Accordingly, it is essential to secure and nurture outstanding human resources. The failure to secure such human resources may adversely affect the KBK Group’s business results and financial condition.

(9) Risk related to legal regulations

In Japan and overseas, the KBK Group is subject to various laws in the course of its business operations. In addition, the KBK Group is subject to various regulations such as business and investment approvals, export restrictions, tariffs, and other export and import regulations due to national security and other reasons.
The costs borne to comply with such laws and regulations may increase, and the failure to comply with such laws and regulations will result in penalties and fines as well as a loss of trust due to the restriction of the KBK Group’s business activities. This in turn may adversely affect the KBK Group’s business results and financial condition.

(10) Risk related to retirement benefit expenses and liabilities

The KBK Group’s employee retirement benefit expenses and liabilities are calculated based on assumptions made in connection with the discount rate and other actuarial calculations, and the long-term expected rate of return on pension assets. If the actual results differ from the assumptions, or if the assumptions are changed, future expenses and liabilities to be recorded will be affected. A decrease in the discount rate and a deterioration in the rate of return may adversely affect the KBK Group’s business results and financial condition.

(11) Risk related to lawsuits and other actions

The KBK Group may unexpectedly be ordered to pay compensation after a lawsuit or other action is brought against it in the course of conducting business, which in turn may adversely affect the KBK Group’s business results and financial condition.

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