It communicates risks related to business, accounting, and other areas of the Group’s operations that we believe could have a major impact on investor decisions. However, please note that the list does not include all risks. and that the Group’s operations may be affected in the future by risks that are either unforeseen or not considered to be serious at the present time. Finally, please note that the forward-looking statements in the text reflect the judgment of the Group’s management as of March 31, 2022.
Most Engineering, Procurement, and Construction (EPC) projects involving plants cover an extended period of time, generally three to five years, from the time an order is received to the time the facility is delivered. In the event there is a lag between quotation and order receipt during which interval prices of materials, equipment, and construction work rise significantly, for example due to fluctuations in economic conditions, to the extent that it becomes difficult to reflect those increases in the contracted amount, degraded project profitability could have an adverse impact on the Group’s business performance and financial position.
In addition to monitoring and forecasting trends in material, equipment, and construction costs, the Group is working to eliminate the risk of cost increases by diversifying its suppliers through development of new business partners and by strengthening relationships with partners through close collaboration from an early stage, prior to the receipt of project orders.
In the event of a serious accident or other contingency leading to a failure to deliver the required level of performance, delayed delivery, personal injury, or property damage as a result of a defect or other design or installation problem with the Group’s products and services, the need for the Group to shoulder enormous repair costs or damages could have an adverse impact on its business performance and financial position. In addition, damage to the Group’s image as perceived by the general public or brand as a result of such an accident or contingency could subsequently have an adverse impact on its business performance.
In addition to reducing the likelihood of design defects and other issues in its EPC business by holding design reviews that involve the heads of involved departments (division and center managers) at the planning, design, and installation stages, the Group works to limit the manifestation of risk in high-risk projects such as large projects and projects involving introduction of new technologies by evaluating risk at the quotation stage and managing and monitoring risk following order receipt in accordance with its Project Risk Management Code. In addition, the Group prepares rules and manuals governing operations in its operation management and operation businesses, works to ensure they have permeated its organization through education and training activities, and strives to limit the manifestation of risk through regular monitoring.
In the event that the subsidy programs available to local governments and private-sector businesses shrink due to changes in national policy, or that private-sector capital investment declines, for example due to an economic recession, the resulting reduction in new and replacement demand for various types of plants could have an adverse impact on the Group’s business performance. In addition, the resulting reduction in demand could lead to intensified price competition with rival manufacturers, causing a decline in order pricing that could adversely impact the Group’s business performance.
In accordance with the basic policies set forth in the 13th Medium-Term Management Plan, the Group is working to maintain and expand its position as a leading company in the EPC business by strengthening its management platform, including by utilizing digital technologies, strengthening R&D, and pursuing partnerships. In addition, we’re focusing on strengthening after-sales service businesses (recurring revenue model businesses) such as maintenance, operation management, and operation, which we expect to benefit from stable demand throughout the plant life cycle. Going forward, we will look to realize further expansion in our recurring revenue model businesses as a revenue base that can accommodate change in the business environment and as a driver of core growth.
As natural disasters that are the likely result of climate change become more serious, humankind must reduce greenhouse gas (GHG) emissions in order to limit the increase in the average global temperature. In the event the Group were to respond too slowly to construction delays or supply chain fragmentation caused by increasingly frequent and severe weather events like torrential rain and typhoons, the strengthening of laws and regulations related to the transition to a low-carbon or decarbonized society, changes in policies or markets, or other related changes in the business environment, effects such as increased business costs or a decline in new or replacement demand for various types of plants could have an adverse impact on the Group’s business performance and financial position.
In promoting ESG management, the Group has identified the need to contribute to measures addressing climate change as one issue that deserves to be addressed on a priority basis (Materiality). Reflecting that commitment, we are working to foster adoption of renewable energy, improve energy efficiency, conserve resources, reduce environmental impacts, and effective utilize unused resources by providing products and services that draw on technologies engineered to facilitate effective use of energy and protection of the environment. Moreover, we announced our support for the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) in April 2022, and we are formulating measures to reduce risks and create opportunities related to climate change. In addition to disclosing information in accordance with TCFD recommendations, we will help realize a sustainable society by continuing to work to alleviate climate change and reduce environmental impacts through our business activities.
The Group observes all applicable laws and regulations in Japan and in the other countries and regions in which it does business, and it works actively to ensure compliance. However, in the event of a serious legal violation, substantial losses resulting from fines and compensation for damages as well as loss of order opportunities due to potential regulatory action such as a mandatory cessation of operations could have an adverse impact on the Group’s business performance and financial position. In addition, damage to the Group’s image as perceived by the general public as a result of such an accident or contingency could subsequently have an adverse impact on its business performance.
The Group considers compliance to be a key foundation of its corporate activities, and we have worked to spread awareness and foster adoption of good practices through ongoing awareness-raising and educational activities. Going forward, we will continue to work to further spread and improve compliance awareness throughout the Group by effectively administering and utilizing mechanisms such as the Internal Reporting System and CSR Awareness Survey and by improving these tools in an ongoing manner.
