Yokogawa Electric Corporation

The Group conducts business in various regions around the world, and if geopolitical or social risks such as wars, regional conflicts, economic sanctions, terrorism, or strikes materialize, this could impact changes in customer needs, rising procurement costs, ensuring the safety of expatriate staff, and disruptions to the supply chain. As countermeasures, the Group is enhancing information gathering through the use of external specialist organizations and enriching its solutions to quickly grasp changes in customer needs resulting from changes in the external environment.

Since the Group operates globally using numerous currencies, sharp and significant fluctuations in exchange rates may lead to a decline in product competitiveness and an increase in procurement costs. There are also risks related to the impact of interest rate fluctuations on the value of assets and liabilities, as well as the risk of recording valuation losses and reduced capital efficiency due to declines in the price of shares held by the Group. The Group utilizes hedging instruments such as forward exchange contracts, and for cross-shareholdings, the Board of Directors annually examines their economic rationality and proceeds with reductions.

While competition for project deals is intensifying, leading to stronger demands for cost reductions, resource-rich countries and emerging markets are also demanding increased localization of product production and procurement. If the Group is unable to effectively respond to these market demands, there is a risk of losing business opportunities. While the Group is working to strengthen cost competitiveness, comprehensively addressing cost reductions, including SG&A expenses, remains a challenge.

Demand for productivity improvements across the entire value chain using digital technologies, including AI, is increasing, and if the Group fails to keep pace with new technologies, there is a risk of losing competitive advantage and business opportunities due to an inability to respond to increasingly sophisticated customer demands. The Group regards value creation through DX as an opportunity for business growth and is working accordingly, but keeping pace with the speed of technological innovation remains an ongoing challenge.

Due to growing social demands for addressing climate change, major customers in the energy-related sector are advancing strategic changes such as energy shifts, which is affecting the Group's business environment. If the Group fails to respond to this change or falls behind in its own initiatives, there is a risk of missing business opportunities. The Group regards this as a business opportunity and is proceeding to respond to changes in the market environment.

In M&A and alliances aimed at entering new businesses and new fields, there is a risk that the business will not launch quickly due to failure of PMI (post-merger integration) or unforeseen changes in the environment, resulting in an inability to fully leverage acquired assets and opportunities. If the expected results are not achieved, it may become difficult to recover the investment, potentially affecting business performance and financial condition. As countermeasures, the Group is formulating and disseminating guidelines governing activities from deal sourcing to post-investment initiatives, and strengthening its project promotion structure.

The importance of specialized talent with solution proposal capabilities, project management capabilities, and expertise in AI/digital technologies is increasing, and if the Group is unable to secure and develop the necessary talent as planned, this will affect effective business operations and strategy execution. As countermeasures, the Group is promoting the provision of growth opportunities, developing environments where employees can thrive, globally unifying HR systems and processes, and pursuing global optimization by defining a talent portfolio aligned with business strategy.

There is a risk that personal information and confidential information of customers and business partners obtained through business activities could be leaked or misused due to cyberattacks or employee misconduct. If this risk materializes, it could result in liability for damages, suspension of business transactions, and damage to the Group's corporate image. The Group has established an information security framework based on ISO27001, and the Information Security Committee is working to strengthen cybersecurity response capabilities across various fields, including products.

In project-based businesses that provide an integrated package of products, engineering, solutions, and services, if there are discrepancies in profitability estimates or procurement difficulties arise due to supply chain disruptions, there is a risk of unforeseen cost occurrence, delivery delays, and liability for damages. The Group is working to prevent the occurrence of unprofitable projects by improving the accuracy of profitability estimates during the order acceptance process and thoroughly managing profitability, production, and quality.

If natural disasters such as wind and flood damage intensified by climate change, large-scale earthquakes, or volcanic eruptions occur and cause severe damage to the Group's physical and human resources, this could affect business performance due to the suspension of important functions and operations. The Group has established an initial response structure through its Crisis Management Committee, and is working toward continuous improvement through the formulation of Business Continuity Plans (BCP) and the regular implementation of BCP drills.