Azbil Corporation

Insufficient assurance of product design and manufacturing quality, or the occurrence of nonconforming products in mass production processes, may result in recall costs and a decline in customer trust. Since the Company's business strength lies in "high quality," there is a risk that the impact could become severe and prolonged, and the Company recognizes that reputational risk has also increased due to the spread of social media. As countermeasures, the Company has implemented standardization of procedures under the principle of "not letting in, not making, not shipping out" defective products, ISO9001 internal audits, strengthened product liability insurance coverage, and the establishment of a social media monitoring system.

There are risks such as information leakage due to email misdirection or loss of devices, and leakage of confidential information or system outages caused by cyberattacks, which could affect business performance and financial condition through fines and damages based on laws and regulations, as well as a decline in social credibility. Taking seriously the computer virus infection incident that occurred in fiscal 2020, the Company continues to strengthen its countermeasures. Specifically, it has implemented technical and organizational measures such as encryption of business devices, measures to prevent misdirected emails, enhanced network monitoring, establishment of a CSIRT, and separation of production equipment networks from business networks.

Delayed response to DX-related technological innovations such as the metaverse, Web3.0, and generative AI, as well as to international standardization trends, may lead to product obsolescence, customer attrition, and the risk of market withdrawal. In addition, inadequate management of the R&D process or a shortage of resources may cause delays in launching new products or development failures, potentially leading to a decline in market share. As countermeasures, the Company promotes regular meetings of the Product Competitiveness Enhancement Committee and Technology Committee, reorganization of the R&D organization in the sensing, actuator, and cloud technology fields, and expansion of external collaborations (with universities and startups).

Changes in the political and economic situation in the countries where the Company operates, as well as wars, conflicts, and the imposition of sanctions, may affect employee safety, business continuity, and credit management, thereby impacting business performance and financial condition. The Company also recognizes new risks such as rising energy prices, logistics disruptions, and extended procurement lead times due to U.S. reciprocal tariff measures and instability in the Middle East. As countermeasures, the Company is strengthening its information-gathering system for geopolitical risks, developing BCPs, diversifying and securing multiple procurement sources, and promoting flexible supply chain reconstruction.

Due to changes in the international situation, export control-related laws and regulations both in Japan and overseas may be suddenly strengthened or changed, which could require the acquisition of new permits from regulatory authorities and affect business activities. If the Company is slow to respond to changes in laws and regulations, there is a risk of suspension of export transactions or violation of laws and regulations. As countermeasures, the Company continuously gathers information on relevant laws and regulations, strengthens export transaction screening by reviewing internal operating systems, and ensures thorough communication through group-wide meeting bodies.

Sharp fluctuations in foreign exchange rates may affect net sales, raw material and parts prices, selling, general and administrative expenses, and other costs, which could have a certain impact on business performance and financial condition. As global business expands, this impact is recognized as a risk that will continue going forward. As countermeasures, the Company implements appropriate financial foreign exchange hedging and works to mitigate risk through the expansion of overseas production and other means.

If earthquakes, tsunamis, volcanic eruptions, or other natural disasters, or fires or explosions occur at domestic or overseas production sites (including mother factories such as the Shonan Plant), they could damage employee safety, buildings, and production facilities, incur restoration costs, and impede the provision of products and services, thereby affecting business performance and financial condition. If damage to social infrastructure or suppliers occurs simultaneously, there is a risk that the impact could be further magnified. As countermeasures, the Company has implemented seismic reinforcement of critical facilities, installation of emergency power sources, introduction of a safety confirmation system, and promotion of BCM, as well as establishing alternative sites in the Kansai and Kyushu business offices, distributing production across multiple domestic and overseas plants, and building a two-site logistics system.

Against a backdrop of the declining birthrate and aging population, intensifying competition for hiring, and work-style reforms, it may become difficult to secure the quality and quantity of personnel necessary for the business, raising concerns about a chronic decline in business performance due to a medium- to long-term labor shortage. In particular, if the acquisition of personnel and skills training necessary for overseas business and new business development is delayed, this could hinder the achievement of business growth targets. As countermeasures, the Company promotes reskilling, an open challenge program, career intention surveys, improved treatment, extension of the retirement age, referral hiring, and active recruitment of graduates from overseas universities (targeting 10 or more new graduates), and verifies effectiveness through employee engagement surveys.

The use of generative AI may give rise to risks such as leakage of personal information and trade secrets, infringement of intellectual property rights, generation and spread of misinformation, and inappropriate decisions due to unintended bias, which could damage social credibility and brand value and result in fines and damages. Laws and regulations related to generative AI are being developed in countries around the world, and stricter regulations may affect operational efficiency and the development of products and services; however, at present, the scope of regulatory application remains fluid, making it difficult to reasonably estimate the degree of impact. As countermeasures, the Company has established and continuously reviews guidelines for the use of generative AI, implemented measures to prevent leakage of confidential information, conducted education and training for all employees, and worked to secure competitive advantage by monitoring the trends of new market entrants.

Laws and regulations concerning generative AI are being developed in countries around the world, and if the Company provides products and services utilizing generative AI, there is a risk associated with non-compliance with or violation of such laws and regulations. At present, the scope and coverage of regulation remain fluid, and future tightening of regulations may affect operational efficiency and the development of new products and services. As countermeasures, the Company continuously monitors technological trends and changes in laws and regulations, and reviews its guidelines and takes action as necessary.