Fuji Electric works to mitigate business risk and other risks in a systematic and methodical manner. However, there are various risks, such as those listed below, which could have a negative effect on the operating results and financial position of Fuji Electric.
As of June 25, 2021, the following factors were judged to have a potential future effect on the operations of Fuji Electric.
1.Management strategy / Business strategy / Business environment
- Fuji Electric swiftly concentrates management resources on businesses earmarked for growth while making appropriate plant and equipment and R&D investments to expand and develop its businesses. For semiconductor-related plant and equipment investments that require large amount of money, we make decisions based on negotiations with customers regarding physical quantities and pricing. For R&D investments, we emphasize consistency with our business strategies and contribution to our businesses and pursue R&D on fundamental and advanced technologies that support Fuji Electric’s future based on our roadmap, while ensuring that management engages in regular deliberations on key development themes and constantly reviews the roadmap according to market changes. However, the semiconductor field is characterized by short product cycles, major fluctuations in product supply and demand levels, and intense competition. In some cases, therefore, there is a risk that we may be unable to recover our investment, which may have an impact on our business performance and financial position.
- Fuji Electric contributes to realizing a sustainable society through our energy and environment businesses. We consider protection of the global environment to be an important management priority and move forward our Environmental Vision 2050, which is aimed at achieving a decarbonized society, a recycling-oriented society, and a society that is in harmony with nature across the entire supply chain. In addition, Fuji Electric announced its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and performs risk analysis associated with climate change from a long-term perspective. However, there is a risk that, if stricter enforcement of the Paris Agreement and other environmental regulations, as well as assessments by ESG evaluation institutions, may lead to stronger criticism of a part of Fuji Electric’s business (coal-fired power generation business), Fuji Electric’s reputation, business performance, and financial position could be affected.
- Fuji Electric has business sites in various countries around the world and offers products and services to local markets and customers. Declaration of a state of emergency and lockdown measures, and other restrictions on economic activities imposed in each country to fight against the COVID-19 pandemic have affected our business activities in various ways, such as limited sales activities, factory shutdowns, and restrictions on business trip for on-site construction. If such restrictions become stricter, there is a risk that such impact on our business activities could further increase, which may have an impact on our business performance and financial position.
We are working to strengthen corporate governance by improving management transparency and auditing functions even during normal times. However, there is a risk that an unprecedented event may lead to deficiencies in our internal control and audit functions, resulting in corporate governance breakdown and consequent business disruption. In such case, Fuji Electric’s business performance and financial position could be affected.
3. Business restructuring / alliance / withdrawal
We are actively engaged in collaborations with third parties through such methods as M&A, joint venture, and business alliance in order to strengthen our competitiveness in various business fields. We share our corporate philosophy, management policies, corporate code of conduct, management plans, business strategies, and so on with our partners to facilitate integration of our business strategies, technologies, products, and personnel. Through the Executive Committee and other meetings, we strive to maintain close communication with partners and build good relationships with them. Due to differences in systems and cultures, however, there is a risk that we may be unable to achieve the desired outcomes of such collaborations, which could affect our business performance and financial position.
4. Orders/ Sales/ Sales promotion
- Fuji Electric is actively working to expand its businesses not only in the Japanese market but also into overseas markets, centered on sales expansion into Asian markets including the Chinese market. We strive not to miss business opportunities by establishing sales offices in various world markets to better understand customer trends and centrally managing the information we collect for analysis and considering countermeasures. We are also working to reduce costs and expenses in order to minimize the impact of Japanese and overseas market trends on our business performance. However, we face the risk of deteriorating market conditions in each country—including private plant and equipment investment and public expenditures—as well as sudden changes in supply and demand of products, intensifying competition, and the resultant significant falls in prices. In such case, our business performance and financial position could be affected.
- Fuji Electric seeks to win orders for large-scale plant projects in such fields as power electronics systems and power generation. We work to secure appropriate profit of each project by improving the accuracy of our quotations at the time of order receipt and strengthening project management afterwards. However, after receipt of such orders, unanticipated specification changes, process delays, natural disasters and other unprecedented events could lead to risk of deterioration in profitability. In such case, our business performance and financial position could be affected.
5. Development / Design / Engineering
We have established an R&D system to accelerate research and development, and we constantly monitor market and customer needs and the latest technological trends. At the same time, we conduct R&D aimed at creating competitive components and systems, centered on power electronics and power semiconductor technologies, while also focusing on R&D to develop solutions that generate customer value through combinations of fundamental technologies. Due to rapid technological advances, however, there is a risk that we may lose our advantage over other companies, and product development may not proceed as planned, making it impossible to launch a new product at the right time, which could affect our business performance and financial position.
6. Procurement / Arrangement
We use various means, including product swaps, to reduce the risk of rising raw material prices. However, depreciation of the yen may lead to rising raw material and component prices, while sharp increases in demand in emerging countries and other factors may cause circumstances to change, resulting in a tighter supply and demand balance for raw materials and production materials. If these prices significantly increase, our business performance and financial position could be affected.
7. Production / Manufacturing / Shipping / Logistics / Installation / Delivery / Service
- We keep track of the latest physical quantity flows by sharing information between our sales and business departments at the Executive Committee. We have also built an optimal production management system that can respond to changes in physical quantity flows by improving productivity and promoting local production for local consumption. However, an unprecedented event could result in increased/decreased demand and other changes in physical quantity flows, leading to the risk of delayed responses and inventory shortages/surpluses. In such case, our business performance and financial position could be affected.
- Through reforms of our supply chain, we work to promote “completely localized” manufacturing via local production for local consumption while also emphasizing global procurement. However, an unprecedented event could result in restrictions on human and commodity movements and disruptions to our distribution network. This could prevent our supply chain from functioning and affect our business performance and financial position due to delays in deliveries or other resultant problems.
8. Quality assurance
We have established a quality control system for the products we manufacture and sell, and we strive to ensure high quality standards while making appropriate insurance arrangements as necessary. However, if an unprecedented event could cause quality-related problems to arise, our business performance and financial position could be affected.
Regarding the defects in power semiconductor products for specific fields as stated in the Consolidated Financial Results for third quarter of the fiscal year ending March 31, 2021 submitted on February 12, 2021, we recorded the cost of corrective measures for product defects of 25.7 billion yen as extraordinary loss for the fiscal year ended March 31, 2021. This cost of corrective measures for product defects is the sum of the fixed amount and the amount reasonably estimated based on the purpose and use conditions of customer equipment. Therefore, if any unprecedented event not included in this estimate occurs, additional costs may be incurred. We will make appropriate disclosures if we identify any significant impact on our business performance and financial position.
9. Human resources / Labor
Fuji Electric’s business activities significantly depend on human resources. We focus on cultivating professional human resources who will help strengthen our global competitiveness in such fields as engineering, production, marketing, and business administration. We actively conduct employee education and training and are expanding mid-career recruitment and other measures to attract exceptional human resources. However, we may be unable to attract and train such human resources as necessary, which could affect our business performance and financial position.
10. Finance / Accounting
- To minimize fund-raising costs, we constantly examine the optimal mix of corporate bonds, commercial paper, and short-term and long-term borrowings, in order to ensure flexible and stable financing arrangements. However, if an unexpected increase in interest rates raises the interest rate burden on our interest-bearing debt, our business performance and financial position could be affected.
- We work to strengthen credit management, including by monitoring long-overdue receivables and the financial status of business partners, in order to enhance our collection of trade receivables. However, if restrictions on economic activities and economic downturn cause business partners’ cash flows to deteriorate and prevent us from recovering debts, our business performance and financial position could be affected.
11. Legal / Ethics
- Fuji Electric conducts business activities in various business fields and global regions in compliance with applicable laws, regulations and other rules of each country. The Fuji Electric Compliance Promotion Committee chaired by Representative Director spearheads efforts to ensure rigorous compliance with laws and regulations. We also have a compliance program that clearly identifies roles and responsibilities covering each aspect of legal regulations—namely, internal rules, monitoring, auditing, and education—and our compliance structure that includes whistle-blowing systems. However, Fuji Electric’s social credibility, business performance, and financial position could be affected if violations of laws and regulations occur.
- In preparation for lawsuits and other legal disputes, we have formed an appropriate task force aimed at building a system to ensure that necessary procedures, such as fact-finding investigations, corrective actions, recurrence prevention measures, internal punishments, and disclosures, are conducted promptly. However, if we are ordered to pay unexpectedly large amounts of damages, Fuji Electric’s business performance and financial position could be affected depending on the decision made.
12. Political situation / Socio-economic trends
- We engage in currency exchange contracts, based on certain criteria, to minimize the impact of the risk of foreign exchange fluctuations on our business performance. However, there is a risk that changes in exchange rates, especially the yen against the U.S. dollar, could affect our business performance and financial position.
- We conduct business in many global markets, including China and Asian countries. We always closely monitor the latest information on geopolitical risks, and we are diversifying our production and sales bases in preparation for unexpected risks. However, any of the following events in foreign countries may have an impact on our business performance and financial position:
- Unexpected enactment of laws/regulations and changes in tax systems with adverse effects
- Disadvantageous political situations
- Social turmoil due to social upheaval, terrorism, war, and the like
13. Shareholder and Investor trends
We attach great importance to disclosure of financial information, active disclosure of non-financial information, and communication with shareholders and institutional investors. We also strive to foster understanding of our management through sincere and accurate disclosure of information according to our Disclosure Policy. However, there is a risk that the intentions of stockholders and other investors may differ from those of the Company’s management, which could result in a vote against the election of officers. There is also a risk that a shareholder proposal against management could cause disruption of our operations. In such cases, our business performance and financial position could be affected.
14.Natural disasters / Accidents
We have business sites around the world and are committed to fulfilling our responsibilities to customers and society by continuously supplying products and services even in the event of disaster or accident. To this end, we established a dedicated crisis management team to spearhead fire safety and disaster-preparedness initiatives, formulate a business continuity plan (BCP), and adopt necessary insurance arrangements in order to “strengthen our business continuity capabilities.” However, there is a risk that certain events, such as large-scale disasters or accidents at our business sites, could cause damage of production equipment, interruption of operations, and delays in product shipments. In such case, our business performance and financial position could be significantly affected.
15. External attack
To address increasingly diversified and sophisticated cyber-security threats, we have established a computer security incident response team and a security operation center (CSIRT/SOC), through which we monitor and control any attacks. We also take ongoing steps to respond more effectively to the continuous emergence of new threats. For example, we are stepping up defense, reinforcing our detection systems, and providing cyber training. However, there is a risk that certain events, including system malfunction and information leakage due to external attacks, such as cyber-terrorism, could result in loss of social trust and thereby affect our business performance and financial position.
16. Individual event (Impact of the COVID-19 pandemic)
We have established the “Contingency Plan” to implement in times of emergency resulting from various risks that may affect our operations. Based on this Plan, we set up the “New Coronavirus Infection Prevention and Business Continuity Promotion Countermeasures Headquarters,” chaired by the president , to address the COVID-19 pandemic. The stated policy of the new entity is to “take prompt and appropriate measures with top priority on respecting human life, preventing the spread of infections, and minimizing damage.” Under this policy, we are gathering and collating information related to COVID-19 and taking measures to prevent the spread of infections (for example, enforcing rules, such as hand washing and disinfecting hands and fingers; avoiding confined spaces, large gatherings, and close interactions; and adopting teleworking and staggered work hours), while also emphasizing business continuity. However, there is a risk that COVID-19 infections may occur in the workplace (of the Company, customer, or business partner), which could force us to suspend production, sales, and various other business activities, and thereby affect our business performance and financial position.