JGC HOLDINGS CORPORATION

Large-scale international projects with oil majors and national oil companies as customers require multiple years from contract conclusion to plant delivery, and involve risks of project plan changes, cancellations, or postponements due to changes in political and social conditions or changes in the customer's circumstances. When forming a JV or consortium, if a partner company fails to perform its obligations or its financial condition deteriorates, the Company may bear the partner's liabilities, potentially resulting in significant additional costs. As a countermeasure, the Company has established a risk management system at each stage of project selection, bidding/estimation, and execution, and strives to reduce risk.

If unstable political conditions, war, civil unrest, terrorism, economic sanctions, etc. materialize in countries where the Company operates, this could result in deteriorating profitability due to project suspension/postponement or delays in procuring equipment and materials in the Engineering business, and a decrease in sales transactions or uncollectible trade receivables in the Functional Materials Manufacturing business. In particular, for projects with high geopolitical or security risk, the Crisis Management Division is involved from the estimation and bidding stage to formulate security measures, in addition to implementing measures such as the use of trade insurance and setting force majeure clauses. In the event of an emergency, an emergency response headquarters is established based on the "JGC Group Crisis Management Basic Regulations" to ensure an organized and rapid response system.

If fluctuations in crude oil and natural gas prices or geopolitical changes such as the Russia-Ukraine situation or Middle East situation lead to a global economic downturn, this could result in customers curbing capital expenditures and intensified competition due to a decrease in the number of development projects. In the Functional Materials Manufacturing business, there is also a risk that strengthened U.S. export restrictions against China could adversely affect sales and profit margins through deterioration of the business environment for the advanced semiconductor industry and product exclusion. The Group Risk Management Committee and the Economic Security and Geopolitical Risk Task Force conduct information gathering, analysis, and sharing, and address these risks through measures such as diversifying procurement sources and passing costs on to EPC and product prices.

Strengthened climate change policies aimed at decarbonization and declining demand for fossil fuels could lead to reduced profitability due to a decrease in the number of fossil fuel-related projects, intensified competition, and increased costs. In addition, an increase in extreme weather events caused by global warming could raise the risk of natural disasters at construction sites and manufacturing facilities. As a countermeasure, the Company is pursuing transformation into a wide range of business areas, including energy transition, resource circulation, and high-performance materials, based on the "Vision 2040" announced in 2021.

If, during the time lag between estimation and order placement, a shortage of parts supply or disruption in international transportation occurs due to economic sanctions, conflicts, global inflation, etc., the cost of equipment, materials, raw materials, fuel, and transportation could rise beyond the Group's projections. This poses a risk of deteriorating project profitability in the Engineering business, and declining profit margins and delays in procurement/supply schedules in the Functional Materials Manufacturing business. As countermeasures, the Company implements monitoring of price trends and improved forecast accuracy, early ordering, diversification of procurement sources, use of futures trading, and appropriate reflection in contract terms.

Since most overseas sales are denominated in foreign currency contracts, sharp fluctuations in exchange rates could affect the business, financial position, results of operations, and cash flows. The Company implements measures such as multi-currency order contracts, overseas procurement, foreign currency-denominated orders, and forward exchange contracts as appropriate to reduce risk. The corporate division of JGC Corporate Solutions has established a system to support each operating company.

Violation of a wide range of regulations, including tax law, construction business law, environmental regulations, import/export trade restrictions, anti-corruption laws, and human rights protection laws, could result in restrictions on business activities, sanctions such as fines and penalties, and damage to social reputation. In particular, with rising geopolitical tensions, import/export trade restrictions are becoming increasingly complex and stringent, and the risk that sanctions and export control regulation trends by the U.S., EU, China, and others could affect business is increasing. The Company implements measures such as establishing a cross-group Compliance Committee, deploying an anti-bribery program, and continuous monitoring of laws and revision of internal regulations by the Export-related Laws Compliance Committee.

There is a risk that confidential information such as important business information, technical information, and personal information could be leaked, lost, or tampered with due to cyberattacks, malware infection, loss or theft of information devices, system failures, etc. Since the Company has numerous business locations both domestically and overseas and an extensive supply chain, there is also a risk that incidents occurring at affiliated companies, construction sites, or factories could spread throughout the Group. The Company implements multi-layered security measures based on the "JGC Group Information Security Policy," regular vulnerability assessments, and strengthened management-level awareness and response through the Group Information Security Committee.

If a shortage of construction workers occurs due to a surge in other construction projects in the plant construction country or overseas labor regulations, this could result in deteriorating project profitability due to soaring wages, construction delays, and increased construction costs. As countermeasures, the Company implements monitoring and forecasting of construction labor trends in major plant markets, minimizing on-site construction work through modular construction methods, collaboration with companies with a track record in local construction work, and setting appropriate contract terms to address rising labor costs.

In growth strategy investments such as digital, M&A, and business development based on "BSP2030," if the performance or financial condition of an investee or partner company deviates from expectations beyond anticipated levels, there is a risk that expected returns may not be realized, the investment may result in a loss, or additional capital contributions may become necessary. There is also a risk that differences in management policy with partner companies or the low liquidity of investments could make it difficult to exit at the desired time or in the desired manner. When making new investments, the Company deliberates based on quantitative and qualitative evaluation by the Board of Directors and the Group Investment Committee, and strives to reduce risk by strengthening regular monitoring of existing investments.