The following significant risks could affect Chiyoda Group business status, finances, and our responses to such. These risks may have a material impact on investor decisions related to investment risk. Recognizing these risks, the Chiyoda Group has set risk reduction measures in place, as well as measures to minimize the impact should such events occur. The risks discussed below are those we recognize as of the date of the fiscal year ended.
Various factors could require that adjustments be made to clients’ investment plans, such as suspension, delay or review. These factors include changes in global economics, social and political situations and a reassessment of energy policies in various countries, as well as the market trend of oil and LNG price, which may also have an impact on Chiyoda Group earnings. Changes in circumstances at the facilities of clients, subcontractors, equipment and materials suppliers, and other service providers could affect our project execution plans, profitability, and ability to collect payments.
We continuously closely monitor global economic and social trends and their potential impact on our business, and strive to set up contract conditions to avoid/minimize these risks. We make also a point of comprehensively studying the corporate activities and status of service providers to avoid/minimize risk, confirming the propriety in placing orders, checking conditions on the ground, and identifying alternate service providers if such becomes necessary.
Country risks (earthquakes and natural disasters, terrorism, wars) and/or other force majeure events could result in direct or indirect damages to work sites or business locations including construction workforce safety issues, delayed delivery of equipment and materials to worksites, and/or suspension of field work, etc.
We place top priority on human life and safety, and have set up a permanent organization, the Crisis Management Unit, to gather and analyze relevant information thoroughly to prevent human suffering or harm. We established and are reinforcing the crisis management system, which allows us to hire professional security consultant in case peace cannot be preserved in the country or area concerned. Moreover, we constantly maintain and develop the system to quickly react to situations and to respond to emergencies in the initial stage, including consulting with the clients and/or the parties concerned. In this way, we are able to avoid or minimize risks from force majeure events.
In lump sum turnkey contracts, we are exposed to the risk of sudden and severe escalation of equipment/materials costs due to the time lag between quotation and actual purchase order for plant construction. Specifically the price of steel, which constitutes the main part of plant construction, would be impacted severely by the rising prices of raw materials such as coal and iron ore. It is similarly difficult to predict the future market prices of copper, nickel, aluminum and zinc, etc.
We avoid these risks (or minimize the impact) by diversifying supply sources, placing orders as early as possible and maintaining alliances with major vendors/suppliers, in addition to analyzing the market trends.
Projects may experience delays if we cannot secure sufficient construction workers, equipment and materials, or other things necessary for the project infrastructure. Recovering from such delays may involve cost overruns.
We avoid this risk (or minimize the impact) by adopting various construction methods, such as modular construction in areas where labor is in short supply, and by establishing a foundation by cooperating with capable subcontractors, vendors and suppliers. If plant construction work is suspended due to strikes or other factors, we minimize the risk by taking the appropriate action together with clients and local authorities.
There are always risks of a major accident occurring in a plant that we have built or which is under construction. If an accident occurs, and the Chiyoda Group is determined to be at fault, the liability for damages could have a material impact on our earnings.
Naturally, we diligently exercise all due care to prevent any unexpected situations by pursuing peerless quality and safety management, advocated by the motto “Safety is the Core Value.” We also avoid/minimize risks by procuring the appropriate insurances and by including a rational division of liabilities in contract terms with our clients.
Some construction projects may involve payment settlements (subcontractors, vendors and suppliers) in a currency that does not correlate with the currency received from client for the work. In such cases, exchange rate fluctuations can have an impact on earnings. The Chiyoda Group avoids/minimizes exchange rate risk by reserving against construction payments in multiple foreign currencies and by entering into exchange rate forward contracts.
For global plant construction work, we need to comply with laws, acts, and regulations, both domestically and overseas. Any problem or suspicious action that occurs, including abuse of human rights and bribery, could have considerable effect on the project execution or business operation of the Chiyoda Group.
The Chiyoda Group makes the maximum effort in every phase to respond to the requests of stakeholders, including authorities concerned and clients, both domestic and overseas, in compliance with the latest laws, acts, regulations or rules related to our business operations. Additionally, we have set up a Compliance Committee under the direct control of the Executive Committee. We try to avoid any risk by incorporating such correspondence to compliance issues into the work process based on “Code of Conduct of the Chiyoda Group.”.
The Chiyoda Group takes great care in managing any information obtained from clients, subcontractors, equipment and materials suppliers and other service providers that is necessary in the performance of its business, and also possesses confidential information related to technologies, sales, and other businesses. Many core corporate operations and business transactions have been conducted by making full use of the IT systems at global subsidiaries. However, Chiyoda Group businesses could be subject to system failure, information leaks and loss of important business information due to computer virus infections, external unauthorized access and cyber attack. The Chiyoda Group, including the main subsidiaries and global headquarters, has obtained ISMS (Information Security Management System) certification, makes every effort to carry out thorough information security management, such as periodic information security training and audits, and takes defensive measures through its business continuity plan.