Important risks of the Fujitsu Group

Significant Risks

[Overview and impact of risks]

In recent years, the frequency and impact of natural disasters, such as typhoons, flooding, and heavy snow, has been increasing due to global climate change. In addition, unforeseen events, such as major earthquakes in the Tokyo metropolitan area or along the Nankai Trough, outbreaks of infectious diseases, or volcanic eruptions, may occur on a scale that exceeds damage estimates. If such situations occur, the suspension of business functions, damage to facilities, electricity, water, and gas outages, suspension of public transportation agencies and means of communication, shortages or delays of parts provided by component manufacturers, and disruption of the supply chain may impact the Group’s ability to continue business activities, including the delivery of services or shipments of products to our customers.

[Measures against risks]

The Fujitsu Group, in order to build a strong collaborative system for disaster prevention and strengthen our business continuity response capabilities, has formed a company-wide disaster prevention organization and is conducting various disaster training. In addition, based on what we learned from our responses to past earthquakes, we have strengthened the earthquake and flood countermeasures and regular inspections at our business sites. This will ensure that even in the event of natural disasters, including earthquakes, large-scale flooding, volcanic eruptions, and outbreaks of an infection diseases, such as a novel strain of influenza, fires, and explosions, we will continue important business operations, fulfill our societal responsibilities as a business, and stably provide the high performance and high quality products and services required by our customers. On top of this, we have established business continuity management (BCM) and are formulating and continuously reviewing and improving business continuity plans (BCP).
In light of our experience with the pandemic infections, we have made ensuring the safety of our customers, business partners, and employees and their families a top priority. We will work to maintain our important business by establishing a system to continue to provide products and services to our customers and to fulfill our societal obligations.

[Overview and impact of risks]

As the Fujitsu Group does business globally, if armed conflicts, terrorism, demonstrations, strikes, political instability, and other events in the countries and regions we operate in occur, it could have a significant impact on the Group’s business, including its supply chain. There is also a possibility that our employees could become mixed up in the event and their safety could be threatened.

[Measures against risks]

We collect risk information and take inventory of businesses in each country and region and share it among related parties. We also promote BCP to suppliers, establish an emergency contact system for employees, and manage employee safety in order to continue business while assessing the situation.

[Overview and impact of risks]

As the Fujitsu Group develops its business globally, it is required to comply with relevant laws and regulations in Japan and overseas, such as the Antitrust and Competition Law, the Bribery Law, and the Export Control Law. In the event that a situation occurs in which such relevant laws and regulations are violated, the Group may be subject to substantial fines and damages. Due to accounting irregularities, etc., in the event that we are unable to receive an audit report from an auditing firm unable to submit an annual securities report, or required to amend an annual securities report submitted in the past, this could lead to a decline in stock prices or a claim for damages from shareholders, which could damage the social credibility of the Group.

[Measures against risks]

The Fujitsu Group has established and continuously operates rules and regulations based on the latest laws and regulations to prevent violations of laws and regulations by officers and employees in the course of business. For accounting irregularities, we conduct internal control evaluations and undergoes internal control audits to ensure appropriate administrative and accounting processing in business processes. In addition, we strives to raise employees' awareness of compliance by disseminating messages from top management and conducting e-learning sessions regularly and training for sales divisions. We also develop and operate an internal reporting system and establishes a system for investigation and countermeasures after the disclosure.

[Overview and impact of risks]

Credit ratings (including CSR and sustainability-related ratings) issued to the Group by external rating agencies have a significant impact on the company’s financial and corporate reputation, and may be used as credit information when we do business with customers and business partners. If these ratings are downgraded for reasons such as failure to achieve our revenue plan or deterioration in our financial conditions, it may affect the Fujitsu Group’s ability to secure financing, as well as put the company at a disadvantage when participating in bids and other business dealings.
In addition, credit insecurity, such as a deterioration in business or economic conditions of business partners, may affect the collection of receivables.

[Measures against risks]

The Fujitsu Group’s measures for securing financing include ensuring liquidity, formulating plans to secure financing, and analyzing market trends.
In addition, as measures for credit management, the Group works to reduce risk through exchanging ideas among credit management-related divisions, sharing and monitoring trends in corporate credit research information from external organizations with relevant departments, and providing advice, instructions, and reminders regarding credit protection.

[Overview and impact of risks]

The Fujitsu Group strives to create technologies and expertise that help differentiate its products and services from those of other companies through its research and development activities. However, we may not be able to adequately protect some of the Group’s proprietary technologies and expertise as intellectual property due to legal and economic constraints. Due to this, we may not be able to effectively prevent other companies from using the Group’s technologies and expertise to manufacture and sell similar products to manufacture and sell similar products or services. Moreover, the creation of comparable or superior technologies by other companies could erode the value of the Group’s intellectual property. Failure to protect and utilize the Group's intellectual property in an appropriate manner may hinder the growth of the Group's business or result in loss of profits.
If the Group's products, services or activities are found to have infringed on another company’s intellectual property rights, or the use of third-party software, including open source software, is found to not be in accordance with the terms of the license, and the company incurs usage fees or design change costs, the Group’s profit or loss may be affected.

[Measures against risks]

In terms of the protection and utilization of intellectual property, the Fujitsu Group is reviewing and promoting its intellectual property strategy to be more effective in the Group's business strategy and business environment. In addition, in order to prevent infringement of intellectual property rights of other companies, we are developing internal rules and systems, strengthening management systems for software use, and conducting intellectual property investigations of other companies in the commercialization process of products and services.

[Overview and impact of risks]

The Fujitsu Group's purpose is to bring trust to society through innovation and make the world more sustainable, and we regard addressing sustainability issues, including the environment, as one of the most important management issues. However, if environmental pollution, etc. occurs in the course of our business activities, there is a possibility that our profit and loss will be affected due to a decline in the social credibility of the Group and the cost of measures such as purification.
In addition, natural disasters, which have increased in frequency and impact in recent years due to climate change and other factors, disrupt procurement, distribution and energy supply networks, and long-term changes in temperature may cause an increase in energy consumption for air conditioning systems, which may affect the Group's business. Currently, as countries around the world set a goal of achieving carbon neutrality by 2050, institutional investors have also made efforts to address climate change an investment criterion, and the social and economic trend toward carbon neutrality is accelerating. In addition to stricter regulations on greenhouse gas emissions and the introduction of a carbon tax, there is a need to contribute to carbon neutrality for customers and society. If we fail to comply with these regulations, or if we fail to contribute beyond the expectations of society, there is a possibility that we will be unable to participate in bids subject to compliance with market standards such as environmental labeling, or the loss of business opportunities due to a decline in corporate reputation. In addition, due to the rapidly increasing demand for solutions that support the transformation to a carbon-neutral social system and climate change adaptation, such as reducing CO₂ emissions by customers and society, shifting to electrification of energy sources, optimizing energy supply and demand, and expanding renewable energy, if we are unable to provide solutions that contribute to energy conservation and carbon neutrality, or solutions that contribute to climate change adaptation, or if we have less energy to reduce than other companies, it may lead to a loss of business opportunities and a decline in market share and profit margins, which may affect the Group's revenue and profit or loss.

[Measures against risks]

The Fujitsu Group has established internal rules based on laws and ordinances to reduce environmental impact and prevent environmental pollution. In the area of energy consumption, we use an environmental performance management system to monitor energy consumption at each business site. In the area of electricity, we use an in-house power procurement system to compare and analyze electricity rates at each company and optimize the cost of contracted electricity and CO₂ emissions. For wastewater and exhaust gas, we set voluntary control values that are stricter than the emission standards of related laws and ordinances, and monitor the values through periodic measurement. We are also conducting soil and groundwater surveys and purification activities at the former site of our Group plants.
In addition, we analyze the evaluation criteria of major external evaluations, disclose information incorporated into the evaluation axis of environmental management, and make improvements aimed at improving environmental performance. In order to fulfill our social responsibility as a leading global environmental company, we have obtained net zero certification from SBTi and are strategically promoting carbon neutrality to our customers and society as a measure against climate change. In order to contribute to carbon neutrality of our customers and society, we design and develop environmentally friendly products and solutions, acquire EPEAT and other environmentally-friendly product labels, and start a new project aimed at building an efficient ecosystem for environmental value trading. We are also working to apply and activate the market for environmental value trading platforms based on blockchain technology and carbon neutral-related technologies for the environmental value trading market, such as the amount of CO₂ reduction across companies and countries.

[Overview and impact of risks]

The Fujitsu Group uses leading-edge technology in our products and services and may use parts that are not versatile or rare materials. Due to this, there is a risk that we may encounter difficulties in procuring a stable supply of certain parts or raw materials, or be unable to secure alternative suppliers, and be unable to sufficiently procure certain parts or raw materials in the large volumes required. In addition, in the event of the occurrence of natural disasters, epidemics of infectious diseases, accidents, or any deterioration in business conditions, it will be difficult for our business partners to provide the Fujitsu Group with a stable supply of components or raw materials. Furthermore, there is an increasing amount of events that affect the stable procurement of parts and raw materials, such as abnormal weather conditions occurring around the word and the disasters that accompany them, as well as growing instability in international affairs. As such, if we are unable to secure a sufficient supply of certain parts or raw materials, it could cause delays in the provision of products and services, resulting in postponement of deliveries to our customers and opportunity losses.
With respect to the procurement of components and other materials, foreign exchange rate fluctuations or tight supply and demand conditions could drive procurement costs higher than initial estimates, leading to diminished returns on products and services, as well as lower sales due to the higher prices.
In addition, while we make every effort to ensure the quality of procured components, we cannot guarantee that all components purchased will be free of defects. The occurrence of such issues could result delays in deliveries, as well as products’ defects, opportunity losses, repair costs, and costs associated with the disposal of defective goods, as well as indemnities to customers.

[Measures against risks]

The Fujitsu Group is working to maintain our supply chain and reduce risk through researching the each status of countermeasures being taken at the manufacturing facilities and business partners for each component, shifting to multi-sourcing procurement, encouraging our business partners to adopt business continuity management (BCM), increasing our support, and ensuring adequate inventory.

[Overview and impact of risks]

To enhance competitiveness within a global ICT business environment, the Fujitsu Group works with a large number of companies through business alliances, technology collaborations, and joint ventures. However, we may not be able to establish or maintain alliances due to managerial, financial, or other causes, or be able to gain sufficient results from them. Many of our products and services employ other companies’ patents, technologies, software, and trademarks with the consent of their owners. However, if we are unable to retain these grants of licenses under terms acceptable in the Group, it may impact the Fujitsu Group’s business.

[Measures against risks]

The Fujitsu Group, when establishing relationships with other companies through business alliances, technology collaborations, joint ventures and other means, strives to minimize the impact these relationships could have on the Group. We do this through recognizing and evaluating risks and then reflecting these risks in the terms of the contract, as well as regular risk monitoring.

[Overview and impact of risks]

A large proportion of our business is with public institutions, such as the government of Japan, local governments in Japan, and foreign governments, and with telecommunications carriers, financial services institutions, manufacturers, and customers in the distribution and retail, and healthcare industries. In addition, in our business outside Japan, government projects in each country are an important part of our business. Customers’ policies and plans of action, the industry business environment, changes in market trends, and industry restructuring trends are tied to customers’ ICT investment trends. Customers’ ICT investment trends and sales of their products and services can have a significant impact on the demand and prices of the Fujitsu Group’s products and services. In addition, the Group’s revenue and profit or loss will be affected if we are unable to maintain trust, business, or contractual relationships with our customers.

[Measures against risks]

The Fujitsu Group conducts our business with the mindset of solving societal issues, and we closely monitor market trends, technological trends, and the circumstances of customers. We aim to build a long-term relationship of trust by providing our customers with solutions the span ICT lifecycle. The Fujitsu Group leverages digital technologies and our experience and understanding of diverse industries to respond to the changing environment surrounding our customers, and plays a role in building a new way of life centered on people and data.

[Overview and impact of risks]

Changes in market environments, intensifying competition, and technological innovation may lead to a decline in prices for products and services. Due to this, in the event that prices decline more than anticipated or there are significant fluctuations in procurement prices, the Fujitsu Group will not be able to achieve sufficient cost reductions or an increase in sales, which will affect the Group’s revenue and profit or loss.
Further, in the ICT industry, in addition to challenges posed by existing industry peers, competition from new market entrants continues to intensify. Today, new entrants continue to emerge in market areas where the Fujitsu Group has a competitive advantage, presenting the possibility that we may fail to maintain our clear competitive advantage in future business operations. Technological advancement in the ICT industry occurs at an extremely fast pace, even new products and technologies rapidly becomes obsolete. In the event that the Fujitsu Group loses our competitive advantage in the competition to develop these technologies to other companies, market shares and profit margins may decline, and the Fujitsu Group’s revenue and profit or loss may be affected.

[Measures against risks]

The Fujitsu Group assumes that technological advances and intensifying competition will lead to lower prices for products and services. The Group will gain insight into issues from societal trends and understand customers’ needs and the status of other companies, as well as work to increase our sales through expanding the lineup of our competitive products and services and reducing costs.
In addition, to maintain competitiveness, it is necessary for us to continue the R&D of leading-edge technology. The Fujitsu Group, by initiating the appropriate investments in R&D, will work to clarify the strengths of our business and how we differ from our competitors, and ensure the competitive advantage of our technologies and services.

[Overview and impact of risks]

As the Fujitsu Group develops its business globally, it is affected by a number of public regulations, policy trends, tax laws and practices in each country and region. In each country and region in which we operate, we are subject to various regulations, including government policies, business and investment permits, restrictions on imports and exports, and laws and regulations related to antitrust, intellectual property rights, consumers, the environment and recycling, labor conditions, dispatching and subcontracting, and taxation.
Furthermore, the recent international situation is affecting the policies of each country and region. In particular, there is a tendency to strengthen regulations on corporate activities based on economic security. Such policy changes and stricter regulations may have an impact on the markets and supply chains targeted by the Group, resulting in an increase in response costs and the possibility of incurring fines and other burdens in the event that a violation of tightened regulations is found.
In addition, the fields in which the Group provides solutions include areas subject to public regulations, such as telecommunications, medical care, construction, and the handling of personal information, and trends in these regulations may have an impact on the Group's business.

[Measures against risks]

The Fujitsu Group closely monitors trends in regulation and policies in each country and region by collecting and analyzing information from government ministries and industry groups. In addition, in the economic security field, we believe that regulations will continue to become stricter in the future, and we are developing a response system within the Group by closely monitoring regulatory trends in Japan and overseas as well as government and corporate trends.

[Overview and impact of risks]

The Fujitsu Group’s growth and operating profits depend heavily on the company’s human resources, so it is important to hire and train necessary human resources, such as managers and top-notch highly specialized engineers, as well as to create an environment in which our human resources can continue to work. If the Group is unable to hire or train human resources, unable to prevent an outflow of human resources, or if serious labor issues occur, it may impact the Group’s growth and operating profits.

[Measures against risks]

The Fujitsu Group is implementing system reforms to foster an organizational culture that respects diversity and challenges oneself, including preferential treatment for highly specialized engineers and a job-based personnel system. In addition, through the promotion of Work Life Shift, the Group is implementing telework as a basic system and actively utilizing flexible working arrangements such as flextime and discretionary working systems, thereby realizing appropriate labor management and creating an environment in which excellent human resources can be retained and continue to play an active role.

[Overview and impact of risks]

In recent years, due diligence on human rights has become obligatory in Europe, and efforts to respect human rights have become even more demanding. In addition to the Fujitsu Group, there is a need to prevent and reduce risks related to human rights in the labor environment and conflict minerals in the supply chain. If human rights risks arise in relation to these matters, the loss of human resources, loss of business opportunities, administrative penalties, etc., could lead to a loss of social credibility for the Group and affect its business.
Furthermore, human rights violations in relation to businesses that use AI technology, which is rapidly spreading, could lead to damages and a loss of social credibility for the Group.

[Measures against risks]

In the Fujitsu Way, the Group has established the Code of Conduct (Respect for human rights, legal compliance, fair business transactions, etc.), which specifies the matters to be strictly observed as employees of the Group, and has elaborated the Code of Conduct to uniformly apply the guidelines (GBS: Global Business Standards) for the conduct of individual employees throughout the Group in an effort to instill and thoroughly enforce internal rules and foster a corporate culture of compliance with the Code. In order to promote the establishment of internal systems and mechanisms for this purpose, we disseminate messages from top management and conduct regular employee education (Human rights, prevention of discrimination and harassment, etc.). In fiscal 2022, we conducted a human rights impact assessment, which is a human rights due diligence process. Based on the latest international trends, we have identified human rights-related risks and identified priority issues based on their importance and business-relevance. Based on this assessment, we have revised the Fujitsu Group Human Rights Statement, which is the Group's human rights policy, and disseminated it to the Group and suppliers. Regarding the AI business, based on the “Fujitsu Group AI Commitment, ” which is the ethical guidelines for AI, we have implemented employee education and established a practical AI ethics governance system to exercise self-discipline as an AI developer and provider, and to become a trusted business partner of our customers. We also conduct AI ethics reviews for all AI businesses.

[Overview and impact of risks]

The Fujitsu Group provides a variety of ICT services to clients in corporate and public institutions, in Japan and every region of the globe.
In addition, we are developing the business brand Fujitsu Uvance as our uniform global strategy. Revenue and profit or loss generated from these operations are greatly affected by economic conditions and/or sudden changes in the supply and demand balance in each respective market.
In particular, the economic trends and sudden changes in the supply and demand balance in our key markets, namely Japan, Europe, North America, and Asia (including China), can impact Fujitsu Group operations.

[Measures against risks]

To respond to the rapidly changing market, we are working to reduce risk by clarifying the business strategy of the entire Group and our business portfolio strategies, as well as implementing continuous structural reforms.

[Overview and impact of risks]

The Fujitsu Group is expanding its business globally. Therefore, sudden fluctuations in exchange rates may reduce the price competitiveness of products and services that we export from Japan and affect the imports of components from outside of Japan, which would significantly impact the revenue and profit or loss of our business outside of Japan. With respect to assets and liabilities held by the Group outside Japan, there is a possibility that exchange rate fluctuations could lead to depreciation of assets and appreciation of liabilities.
In addition, the Fujitsu Group also has interest-bearing loans, which include debt directly impacted by interest rate fluctuations. Consequently, rising interest rates could increase borrowing costs such as interest expense and procurement costs.
Further, stock market trends in and outside of Japan have a substantial effect on the value of Group stockholdings in other companies and the management of pension assets. Weak stock market performance could thus force us to incur losses on the devaluation of marketable securities held or a reduction in pension assets, leading to an increased burden on the company.

[Measures against risks]

The Fujitsu Group collects information on the financial market environment, including exchange rate fluctuations, and analyzes financial institution trends and hedges risks with foreign exchange forward contracts as necessary. In addition, we work to share information across the entire Group and to minimize any impact to the company.

[Overview and impact of risks]

In the ICT industry, large investments in R&D, capital expenditure, transfers and acquisitions of business, and business restructuring may be necessary to maintain competitiveness.
If the markets, technologies, or acquisitions that the Fujitsu Group considers to be promising do not lead to the growth we anticipate, supply and demand conditions deteriorate, or prices decline more quickly than we anticipate, the Group may not receive sufficient returns on our investments, which could significantly affect our operating results.

[Measures against risks]

The Fujitsu Group, in making investments and restructuring our business, takes into consideration market trends, customer needs, the competitive advantage of our technologies, we acquire, the Group’s business portfolio, and other factors. In addition, we examine our investment efficiency, have established evaluation indicators and processes, and reduce risk by dividing our investments into multiple stages according to necessary changes and forming partnerships with customers.

[Overview and impact of risks]

The Fujitsu Group owns and leases a variety of facilities in and outside of Japan, including offices, manufacturing facilities, and datacenters, and also utilizes cloud services from other vendors. In the event of an earthquake, major flooding, fire, radioactive contamination, infectious disease outbreak, terrorist attack, demonstration, strike, faulty construction quality, or the occurrence of operational errors, among other factors, we may need to stop operations of a production line, facility, or internal core information system. This may affect the Fujitsu Group’s business.

[Measures against risks]

The Fujitsu Group has monitored and operated 24/7 for internal core information systems, and implemented measures based on the business continuity plan. For all facilities and services, we have established our own safety standards in accordance with building codes and other regulations to reduce risks.