Hitachi, Ltd.

A slowdown or recession in the global economy, or heightened conflict or tension in specific countries or regions, may reduce demand for the Group's products, systems, and services or constrain business activities. Strengthened economic security policies in various countries and the expansion of conflicts between nations could also affect business operations. In response, the Group pursues a combination management approach across diverse business fields and regions in its Social Innovation Business, and seeks to respond promptly to changes in geopolitical conditions through risk assessment.

The Group, which operates globally, is constantly exposed to foreign exchange rate fluctuation risk; a stronger yen leads to lower yen-denominated revenue and higher costs. For FY2027 (ending March 2027), sensitivity is estimated at ¥14.5 billion in revenue and ¥1.5 billion in Adjusted EBITA per ¥1 fluctuation in the dollar, and ¥9.0 billion in revenue and ¥0.8 billion in Adjusted EBITA per ¥1 fluctuation in the euro. The Group responds through hedging instruments such as forward foreign exchange contracts and currency swaps, as well as by promoting a local production for local consumption strategy, though the risk cannot be completely eliminated.

The Group actively pursues M&A and strategic alliances to expand its business, and as of the end of the current consolidated fiscal year, goodwill amounted to ¥1,429,043 million in the Digital Systems & Services segment, ¥659,712 million in the Energy segment, ¥275,583 million in the Mobility segment, and ¥283,163 million in the Connective Industries segment. If the profitability of investees declines, substantial losses such as goodwill impairment may occur. The Group conducts multifaceted analysis and discussion of phase-gate management and PMI processes through the Investment Strategy Committee, Executive Committee, Board of Directors, and Audit Committee.

The Group's dependence on information systems in its business activities is increasing, and if system functions are disrupted by computer viruses or cyberattacks, this may adversely affect business activities, operating results, and financial condition. Current countermeasures may not be effective against unprecedented cyberattacks or vulnerabilities in systems outside the Company's control. The Group responds through continuous promotion of cybersecurity measures and strict definition and operation of technologies, products, and usage procedures applied to information systems.

Amid rapid advances in technological innovation such as AI utilization, digitalization, electrification, and decarbonization, the Group may lose competitiveness if it fails to continuously and swiftly apply advanced technologies to its products, systems, and services. Although substantial management resources are being invested in R&D and startup investment through corporate venture funds, development of advanced technologies may not proceed as planned. The Group seeks to build an innovation ecosystem through open innovation involving industry, government, and academia, securing and developing digital talent, and the co-creation process using Lumada.

In long-term contract work such as infrastructure system construction, fluctuations in estimated total costs and estimated total revenue, or deficiencies in project management, pose risks of schedule delays, cost increases, and claims for damages. Particularly for high-risk projects involving new technologies, revisions or cancellations of contract terms may be required, potentially forcing significant changes to initial estimates. The Group responds through risk assessment prior to contract conclusion and continuous project progress and cost management between business and finance divisions after contract conclusion.

Diverse competitors exist, ranging from large international companies to startups, and advances in AI and robotics are significantly transforming the competitive landscape itself. Commoditization of solutions and services, along with cloud adoption and automation, is intensifying price competition, while cost increases from raw material prices, labor costs, tariffs, and foreign exchange fluctuations may pressure profitability. The Group responds through strengthening innovation via R&D, expanding the Lumada business and adding value through HMAX, cost reduction through value engineering, and price pass-through negotiations with customers.

As the utilization of AI, including AI agents and physical AI, expands, this may lead to information leaks, intellectual property infringement, privacy violations, and impacts on product quality due to malfunction, potentially damaging trust and reputation and causing economic losses. In addition, uncertainty in AI-related laws and regulations, both in Japan and overseas, may adversely affect business activities, financial condition, and operating results. Under AI Ethics Principles and Ethics Policy, the Group strengthens AI governance through risk control by the AI Governance Committee, development of AI agent utilization guidelines, employee training, and collaboration with external experts.

Competition to recruit and retain excellent talent, such as global leaders and AI professionals, is intensifying, and if the Group cannot secure the necessary talent, maintaining its competitiveness may become difficult. In addition, if a serious occupational accident or deficiency in health and safety management occurs, this may lead to operational stoppages or project delays, adversely affecting business activities, operating results, and financial condition. The Group responds through securing and developing talent via competitive compensation, a globally common HR system, and in-house training programs, as well as by building a unified health and safety management system and conducting regular risk assessments.

The Group faces legal proceeding risks such as antitrust violation investigations and damage claims, and substantial fines or damages may be imposed in multiple jurisdictions. The costs of complying with regulations in various countries related to investment, export, tariffs, anti-bribery, and personal data protection are also increasing, and regulatory violations may seriously and adversely affect operating results, financial condition, trust, and reputation. The Group continuously implements compliance measures, including identifying operations subject to regulation, conducting risk assessments, implementing risk-appropriate measures, and providing employee training.