Annual Report 2013

lags between international and domestic market prices can have a material impact onthe Group’s business performance and fi nancial condition.(5) Interest Rate FluctuationsInterest rate fl uctuations can lead to higher borrowing costs if interest rates rise. Thus,interest rate fl uctuations can have an impact on the Group’s borrowing costs and canmaterially affect the Group’s business performance and fi nancial condition.(6) Asset Valuation FluctuationsDepending on economic circumstances, valuation losses because of fl uctuations in thevalue of assets, such as land and marketable securities that are held by the Group,could have a material impact on the business performance and fi nancial condition ofthe Group.(7) Competition RiskThe Group is engaged in stiff competition with domestic and overseas companiesmainly in the oil business. While the Group is working to maintain and improve itscompetitiveness, the inability to maintain effi cient business operations relative tocompeting companies may have a material impact on the Group’s businessperformance and fi nancial condition.(8) Impact by Natural Disasters and AccidentsAs its refi neries handle large volumes of fl ammable materials, the Group takesparticular care in implementing various safety measures to prevent accidents causedby human errors, and to avoid workplace injuries. Notwithstanding these precautions,the occurrence of an earthquake, other natural disasters, or unforeseen accidents canresult in unavoidable stoppages of operations. As a result of the Great East JapanEarthquake of March 11, 2011, for example, the Group was forced to suspendoperations of the Chiba Refi nery for a certain period and consequently incur lossesand restoration costs. In addition, accidents in non-refi nery operations, such as oilstorage depots, service stations, marine tankers, and tanker trucks, could noticeablyaffect the Group’s operations and have a material impact on its business performanceand fi nancial condition.(9) Impact by Regulations Applicable to the Oil IndustryVarious regulations regarding pollution and environmental issues that affect the oilindustry have been implemented, and the Group bears the cost of complying withthese regulations. As more stringent environmental countermeasures are expected,the Group recognizes the possibility that it could be subject to new laws, regulations,and taxes. Going forward, there is a risk that new laws or amendments to existinglaws will result in an additional cost burden for the Group. In promoting its CSRmanagement efforts, the Group positions legal compliance as an integral part of suchefforts, establishing the necessary systems and striving to enhance the morale of allemployees. However, if the risk of legal infraction materializes because of humanerror or other factors, the Group may become subject to government penalties thatwould obstruct business operations, reduce the level of trust among customers, anddamage the Group’s brand image, which could, in turn, affect the Group’s operatingperformance. For example, one of the Company’s refi neries was subject toadministrative penalties by the Nuclear and Industrial Safety Agency of the Ministry ofEconomy, Trade and Industry. This incurred additional maintenance costs, which hadan impact on the Group’s business performance.(10) Information ManagementIn terms of information management, malicious software countermeasures andpersonal information protection measures have been implemented to strengthen theGroup’s internal IT system security. In addition, the Group has established internalmonitoring procedures and regulations on how to handle confi dential information,including customer information, and it has contracted external third parties to havethem implement supervision and audits over the management and handling ofconfi dential information within the Group. However, the materialization of risks, suchas any loss, leakage or alteration of confi dential information, including personalinformation, for any reason, could result in a loss of customer trust and tarnish theGroup’s brand image, which, in turn, could have a material impact on the Group’sbusiness performance.