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Risks Relating to Our business
Regarding the business and accounting situations, etc. described in the financial statements in security reports, the main risks that the operator recognizes as having the possibility of significantly impacting the financial condition, business performance, or cash flow condition of the Group are as stated below.
These main risks were described in the Group's regular risk identification/assessment as matters that should be addressed as a priority, in view of the extent of their impact and frequency of occurrence. However, this is not an exhaustive list of all the risks facing the Group and other risks besides those stated also exist. The Group could be impacted by any such risk factors.
Risk Heat Map (Possibility of Occurrence and Extent of Impact)
List of Main Risks
The impact of the risk on operating
Our risk management
Natural and Other
|There is the possibility that a major natural or other disaster may occur, and there may be other unforeseen circumstances accompanying the disaster such as infrastructure outages or fuel, materials, or personnel shortages. These could lead to projects being halted or postponed, or damage to office buildings and equipment, which would impact the performance of the Group.
| The Group has worked to minimize risks and damages related to natural disasters, novel virus epidemics and other similar contingencies by installing facilities, carrying out drills, putting rules in place, and creating manuals to ensure the continuity of business while ensuring that preventing harm to personnel is its top priority.
With an increasing number of natural disasters such as more powerful typhoons, torrential rain and frequent earthquakes in recent years, as well as escalating new threats such as novel viruses, the Group sees it as essential to enhance its risk management capability in business management. In April 2020, the Crisis Management Office was established as part of group-wide efforts to secure the provision of services, through the inspection and maintenance of various facilities and equipment, and to deal with reputation risk arising from a pandemic, etc. with the aim to ensure stable and smooth business management from customers’ perspectives.
| Laws including the Construction Business Act, the Subcontract Act, the Anti-Monopoly Act, the Industrial Safety and Health Act, and environmental laws restrict the Group's businesses. Any revision or abolition of laws, new restrictions, changes in applied criteria, etc. could affect Group performance.
Any violation of these laws could affect the Group's results and reputation.
| The number of new laws and regulations related particularly to the environment and ways of working that have been established and revised has been increasing in recent years, and related departments within the Company monitor legal changes and produce an appropriate response to the legal changes known to the Group companies prior to their enforcement. In this way, the Group is building a system to ensure it promptly complies with laws and regulations in a unified way.
The Group conducts a legal compliance inspection of itself once a year. The Internal Audit Division inspects compliance and takes corrective actions.
M&A Activities and
| The Group believes that mergers, acquisitions and business alliance strategies are important and an effective part of business expansion, etc.
A failure to identify effective investment opportunities and results of investments being lower than expected could affect Group performance.
If the Group enters new business domains or new markets through M&A activities or by other means, risks specific to the new domains or markets could be added.
If goodwill arises, our assumption is that we have sufficiently stable earnings power to exceed the amortization of goodwill. If the execution of the business plan made at the time of the acquisition is hampered due to changes in the business environment, the competitive landscape or other reasons after the acquisition, and progress is not made as planned, the Group many incur losses including an impairment loss related to goodwill, which could affect Group performance.
| In the 2030 Vision and the Medium-Term Management Plan (FY2021 to FY2025), the Group states that it will actively and strategically invest, including in M&A activities. The Group must always consider the possibility that risks related to these investments may materialize.
If the Group conducts a merger or acquisition or enters into a business alliance, the Group verifies and determines matters such as future market trends, synergies with the Group, and the identification of potential risks of the target company, from various standpoints. It also refers to the results of research by outside lawyers, financial advisors and other experts, and draws on its accumulated knowledge and experience.
After M&A activities, etc., the Group monitors developments such as the progress of business plans made during the planning stages of M&A activities, etc. and the extent to which synergy is generated.
| The Group operates in many countries, primarily in Southeast Asia. There are a variety of risks overseas, including rapid changes in political and economic circumstances, exchange rate fluctuations, unexpected changes in laws, natural disasters including earthquakes and typhoons, and infectious diseases epidemics.
There are also concerns about risks arising from the prolonged Russian invasion of Ukraine, and the situation requires continuous attention, given issues such as surging raw material prices and the impact from damages to supply chains.
Any difficulties in operations due to the occurrence of unexpected problems and a failure to deal with the risks these problems present could hinder the expansion of global business in the medium term and affect Group performance.
| In Asia, we have bases in the Philippines, Thailand, Singapore and Indonesia. To strategically manage and facilitate the management of the operations of these overseas subsidiaries, we established the EXEO GLOBAL regional headquarters in Asia in Singapore in November 2018. EXEO GLOBAL gathers and analyzes local information and manages and monitors local subsidiaries. It also connects the Company to its overseas subsidiaries.
The solution business has been growing steadily, and refurbishment business that utilizes used IT equipment was launched on a global scale.
Moreover, in an effort to improve the internal whistleblowing system in response to the growing overseas business, a global whistleblowing reporting desk was established for the Group’s employees working abroad.
We identify expected risks and examine responses before making individual business investments and ask external experts to review matters with which we do not have adequate knowledge or experience.
While we cannot fully hedge against the impact of exchange rate fluctuations in relation to our foreign currency denominated assets and liabilities, we seek to mitigate the risk mainly by concluding forward exchange contracts and holding assets and liabilities denominated in the same currencies so that we can offset foreign exchange losses.
| Climate change is an urgent issue which has an enormous impact on the sustainability of society. As a Group involved in the renewable energy business, climate change represents both a risk and an opportunity to help solve climate-related issues through our business activities. We therefore recognize that action on climate change is an important issue for management.
Depending on the action we take, the major risks outlined below could affect Group performance and Group credibility over the medium and long terms.
(1) Transition risks
The Group's failure to adapt to the transition to a decarbonized society or to customer needs for adaptation to climate change could lead to a decline in corporate value and a loss of orders as a result of a negative assessment of the Group among customers, investors and other stakeholders, as well as higher costs associated with the introduction of carbon pricing and other measures.
(2) Physical risks
The flood damage that is expected to occur as result of climate intensification will increase the risk of damage to buildings, construction sites, facilities and other property, and the increase in temperature will increase the risk to health on outdoor construction sites (heat stroke, etc.) and will lead to lower operating efficiency, delays in the delivery of ordered work and higher costs to combat climate change.
| In response to transition risks, we are committed to reducing greenhouse gas emissions by actively promoting a switch to renewables in our business activities, and we are also actively working to expand electrical engineering business related to renewables such as offshore windfarms to meet growing demand. We will also strive to enhance information disclosure in line with the framework recommended by the Task Force on Climate-Related Financial Disclosures (TCFD).
Going forward, the Group will continue aiming to balance a sustainable society and the Group's sustainable growth by addressing social issues through its business operations while monitoring the impacts of climate change and developments in government policy and society for the reduction of greenhouse gas emissions.
| Difficulties procuring raw materials, materials and other resources as a result of damage sustained by suppliers in a natural disaster, social unrest (including but not limited to war, act of terror, infectious disease and geopolitical risk), deterioration in business performance or other factors could lead to construction stoppages and affect the agreed construction periods.
In addition, rising prices for raw materials, materials and other resources could cause procurement costs to soar and affect the Group's business performance.
Considerable time will be needed to resolve the semiconductor shortage caused by factors that include the U.S. government’s punitive measures against China and the prolonged Russian invasion of Ukraine, and extended work periods, etc. associated with the long lead time for the procurement of materials for mobile communication base stations may affect the Group’s business performance.
| Regarding the semiconductor shortage, we are monitoring supply and demand and are also endeavoring to minimize the impact by planning construction work carefully, including first carrying out the construction work to the extent that goods are available and completing the work once we have all the goods we need, from the viewpoint of keeping to the delivery dates agreed with customers.
As for the rising procurement costs of raw materials, materials and other resources, we are working to mitigate risk by implementing measures such as ordering materials early, diversifying suppliers, incorporating conditions on price increases in contracts, and passing on higher costs to construction prices.
| The core business of EXEO Group (hereinafter referred to as the Group) is building and constructing information and communication networks, and transactions with telecom carriers account for a large proportion of transactions. This trend is expected to continue.
Changes in the way telecom carriers carry out and structure their capital investments as a result of market trends in the telecommunications industry, technological innovation, or other factors could impact the business performance of the Group.
| In information and communication fields, capital expenditures are expected to remain strong as telecom carriers install radio base stations and build mobile backhaul networks to expand 5G areas and respond to increasing traffic due to the expansion of remote working and the growing use of social media.
In June 2020, the Ministry of Internal Affairs and Communications published its Beyond 5G Promotion Strategy-Roadmap towards 6G-, which describes the direction of technologies and policies that society will require in the 2030s. The Ministry has been publishing progress reports that describe the status of progress in initiatives in line with the strategy as well as summaries of future initiatives every year. (Progress Report 2022 was published in March 2023.) There will likely be further progress in telecommunications infrastructure and technological innovation.
In the Telecom Carriers business, we will actively engage in 5G development and strive to increase profitability. Under our 2030 Vision formulated in May 2021, we will transform our business structure to expand Urban Infrastructure and System-Solutions to make sales in each segment almost equal by FY2030 to build a robust management foundation that is less susceptible to economic and social conditions.
| The COVID-19 pandemic, which first became a concern in late January 2020, triggered lockdowns in Southeast Asian countries, which was the main factor in a slowdown in the Group's global business. However, the effects of COVID-19 on the entire Group's results have been limited.
In addition to the policy measures of administrative authorities, how novel viruses will affect the Group’s business performance warrants monitoring and review, as it is difficult to foresee the future effects or when it will end, given the emergence of new variants and the possibility of the renewed spread of infection.
| The Group established a COVID-19 task force in February 2020 and has conducted business operations carefully and flexibly, including thoroughly disinfecting offices, providing PCR self-testing kits, ensuring that employees are aware of rules regarding their behavior, implementing staggered working hours and teleworking, restricting the holding of meetings and events and participation in them, limiting business trips within Japan and overseas, introducing a workplace vaccination program, and recommending three vaccinations in total.
Although the classification of COVID-19 was lowered to Class 5 in May 2023, the Group will maintain prudent and flexible business management in line with government policies, etc., giving first priority to the safety and lives of employees in Japan and overseas, their families and other stakeholders.
|In the course of our business operations, the Group handles important data for customers, including the technical or personal data of customers and other parties. Any leak of important information and data from the Group as a result of any contingency could result in the loss of customer trust as well as an obligation to pay damages or take other actions, which could impact on the performance of the Group.
| We have put into place a system rooted in a full recognition of the importance of information management. To create this system, we have undertaken initiatives including the construction and operation of an information security management system, the appointment of a chief information security officer, and the establishment of an Information Security Committee. The Group has obtained information security management system certification and is permitted to display the PrivacyMark.
To appropriately and promptly respond to increasingly diverse and sophisticated cybersecurity threats, we established the EXEO Security Incident Response Team (EXEO-SIRT) in July 2019. We joined the Nippon CSIRT Association in December 2019 and are working to strengthen our system to respond to cybersecurity threats.
EXEO-SIRT is a response team established on the assumption of security incidents. It detects and prevents cyber attacks targeting terminals and other assets that need protecting and supports the Group's response in the event of a computer virus or information leak.
Through its activities, EXEO-SIRT seeks to minimize damage in the event of an incident and also shares cyber attack trends and actual cases observed within the Group and at other companies to raise awareness during normal times in an attempt to prevent damage from occurring.
With renewed recognition of the importance of strengthening group-wide risk management, the Group will strive to maintain and improve the security of internal systems and those systems that it offers.
We also seek to raise awareness among all employees through e-learning, carry out targeted email attack drills and strive to improve computer literacy.
|A major accident resulting in death, injury, or equipment damage as a result of unforeseen circumstances by the Group could result in the loss of customer trust and could lead to the need to pay compensation, reduced chances for orders, or other consequences that impact the performance of the Group.
| The Group works day-in, day-out to prevent accidents resulting in death, injury, or equipment damage at construction sites, making every effort to ensure safety and quality and strengthening site management.
From 2016, we worked to create a system where each of us recognizes the importance of safety and quality and is able to perform basic actions under the slogan "back to the basics of a safety and quality culture." For the five years from FY2021, our slogan is "the evolution (deepening and progression) of the safety and quality culture," and we will seek, of course, to eliminate accidents and ensure we are a company and a group that are safe, secure and are relied on through the promotion of initiatives to enhance quality and create added value.
Regarding measures to mitigate risks to ensure safety, the Group is above all committed to reviewing work for the elimination and reduction of hazardous work, starting in the planning stage (essential measures) and is proactively pursuing measures involving equipment such as heavy machinery (engineering measures).
We are also taking management measures, including streamlining communication between people on site and at the office and the expansion of support through the use of network cameras and other information communication technologies, as well as human resources development, including training of on-site managers and foremen.
In addition, we place emphasis on measures to make safety actions a habit through the improvement of interactive-type patrols to proactively find and disseminate examples of commendable actions.
We have received an industrial safety and health management system certification and a quality management system certification and continuously work to improve safety and quality.