External factors that may have an effect on the Kawasaki Heavy Industries Group's performance and financial position include the following.
(1) Political and Economic Conditions
The KHI Group conducts its business activities not only in Japan but also elsewhere in Asia, North America, Europe, and other areas, and is affected by political and economic conditions in each of these regions. For example, trends in personal consumption may have an impact on the sales of the Motorcycles & Engines segment, while trends in private-sector capital investment and public works investment affect the orders of the Gas Turbines & Machinery and the Plant & Infrastructure Engineering segments. Moreover, demand for passenger air travel and conditions in shipping markets may affect the Aerospace, Shipbuilding, and other segments.
Furthermore, disputes, political turmoil, and other factors may affect the Company's overseas projects.
(2) Fluctuations in Foreign Exchange Rates
Overseas sales accounted for 47.8% of consolidated net sales in fiscal 2010 ended March 31, 2010, and the Group has a substantial volume of transactions denominated in U.S. dollars, euros, and other currencies. With respect to transactions denominated in foreign currencies, the Group strives to reduce foreign exchange risk by such means as increasing the proportion of overall costs denominated in foreign currencies and engages in hedging techniques such as flexible forward contracts, taking into account trends in foreign exchange rates. Nevertheless, the majority of the Group's manufacturing facilities are located in Japan, and sales to overseas markets are subject to foreign exchange fluctuation risk.
(3) Fluctuations in Prices of Raw Materials
Since the Group has many projects that require considerable time from the receipt of orders to final delivery, fluctuations in the prices of steel and other raw materials during the course of projects may have an impact on profitability. Accordingly, the Group is exposed to the risk of raw material price fluctuations.
(4) Government Regulations
The Group conducts its business activities in compliance with the laws, regulations, and other controls in the countries and regions where it operates. The Group's operations may be affected by unforeseen changes in such controls or the application of new controls.