Mitsubishi Heavy Industries, Ltd.

Deepening conflicts between nations, self-first policies, conflicts and terrorism in the Middle East, exchange rate and interest rate fluctuations, rapid inflation, and soaring material and transportation costs may lead to increased production costs and stagnation of business activities. For the Group, which operates globally, these changes in the external environment could have a material impact on business results and other outcomes. The Group continuously collects information on political and security conditions in various countries and maintains ongoing coordination with relevant government ministries and agencies.

Labor shortages are becoming more severe due to the declining birthrate, aging population, and shrinking population; the continued weak yen is causing an outflow of excellent domestic talent; and a decline in young people entering manufacturing is reducing the number of engineering personnel. Shortages of skilled workers and digital talent could lead to a discontinuity in technology and skills, potentially causing a decline in the Group's competitiveness. As a countermeasure, the Group is promoting the codification of skilled techniques using AI to strengthen its technological and human resource base.

There are concerns regarding the risk that the rise of physical AI could erode the advantage of the Company's skilled techniques, that delays in utilizing AI agents could stall operational efficiency improvements, that responses to AI-related laws and regulations both domestically and internationally could lag, and that startups could render existing business models obsolete. Competitors' development of new technologies and shifts to substitute products may also lead to a decline in the share of the Company's products and technologies. The Group is promoting the codification of skills through AI utilization while continuously monitoring technology trends.

Changes in various regulations, including decarbonization-related laws, intensifying global competition with overseas companies, difficulties in procuring materials and components including rare metals, and reductions in after-sales services due to decreased product operation caused by customer circumstances may have a material impact on business results and other outcomes. Energy transition is positioned as a growth area, but a realistic approach that takes energy security and industrial competitiveness into account is required. The Group is promoting the provision of economically rational solutions through the development of various products, including CO2 capture technologies.

Large-scale natural disasters such as earthquakes, tsunamis, and floods, conflicts and terrorism, global pandemics, and serious accidents or industrial accidents could cause production facilities concentrated in Japan, Thailand, and elsewhere to experience reduced operations or shutdowns. The loss or damage of production equipment, disruption or confusion in the supply chain, loss of alternative procurement sources, and losses not covered by insurance could have a material impact on business results and other outcomes. The Group is implementing countermeasures such as formulating and maintaining business continuity plans, promoting seismic reinforcement of facilities, conducting regular plant inspections and drills, and securing appropriate insurance coverage.

Issues related to product and service performance, quality, and delivery deadlines, as well as safety issues, cost deterioration due to specification changes or process delays, and claims for damages or contract cancellations from customers may occur. There is also a risk that alternative procurement sources cannot be secured due to supplier bankruptcy, business closure, or acquisition by competitors, which could lead to a loss of social reputation and credibility, as well as litigation or arbitration proceedings both domestically and internationally. The Group strives to prevent recurrence through the development and strengthening of its business risk management system, prior deliberation and post-order monitoring of individual projects, and reflecting the summary of causes of past major loss-making projects in internal education.

There is a possibility that third parties may allege infringement of intellectual property rights, or that employees or former employees may file lawsuits regarding compensation for employee inventions. If the Group loses such a lawsuit, it may be liable for damages and may become unable to use certain technologies, potentially hindering business operations. The Group investigates third-party intellectual property at each stage of basic planning, design, and manufacturing of its products to prevent disputes in advance, while also enhancing the expertise of its intellectual property department.

Increasingly sophisticated and advanced cyberattacks could cause failures in core systems and other systems, business disruptions, and significant recovery costs and liability for damages. The loss or leakage of confidential information could lead to a significant decline in competitiveness, loss of social reputation and credibility, regulatory investigations, and claims for damages from customers, potentially having a serious impact on business operations. The Group has established a cybersecurity promotion structure and continuously strengthens controls such as the development of rules, self-inspections, defensive measures, and detection systems, while also conducting education and awareness-raising activities for employees.

Violations of various domestic and international laws and regulations, including the Antimonopoly Act, anti-bribery laws, foreign exchange and trade laws, the Construction Business Act, and the Personal Information Protection Act, could result in administrative penalties such as fines, business suspension, or export bans, as well as claims for damages. Given the nature of the Group's business, violations of the Antimonopoly Act, anti-bribery laws, and foreign exchange and trade laws in particular could have an even more serious impact. The Group thoroughly implements countermeasures such as establishing and operating global codes of conduct, holding regular Compliance Committee meetings, developing internal whistleblowing systems, and conducting human rights due diligence.

Rapid exchange rate fluctuations, rising interest rates, and inflation could lead to increased production costs and a deterioration in the profitability of overseas operations. A continued weak yen may cause an outflow of excellent domestic talent and difficulty in hiring overseas, while soaring material, transportation, and other costs could have a material impact on the Group's business results and other outcomes. The Group is addressing these risks through diversification of its global business portfolio and appropriate risk hedging, among other measures.