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Hitachi

Hitachi High-Technologies GLOBAL

The following is a non-exhaustive list of some of the risks the Group might face in the course of its business activities that have the potential to affect its operating results, stock price, and financial condition. Forward-looking statements in this report are based on risks identified as of the end of fiscal 2015 (March 31, 2016).

1. Market Trends

The Group conducts business globally in regions such as Japan, Europe, the U.S., China, and other parts of Asia in the Science & Medical Systems, Electronic Device Systems, Industrial Systems, and Advanced Industrial Products fields using both its advanced technological development capabilities and trading functions. Changes in the markets for finished electronics products, in the balance of supply and demand for electronic devices, or deterioration in the economic environment in any of these regions could adversely affect the Group's operating results.

2. Technological Innovation

In the Science & Medical Systems and Electronic Device Systems fields, the Group's main businesses, new technologies are being developed daily. The development of advanced technologies and their continuous application to products and services in a timely manner are vital to ensuring the Group's competitiveness. To launch these sorts of new products, the Group is concentrating on R&D in close cooperation with the research facilities of parent company Hitachi, Ltd. However, there are no guarantees that the Group's R&D activities will always be successful. Failure to translate R&D and commercialization of new products into successful outcomes could adversely affect the Group's operating results.

3. Escalating Competition

The Group's principal business domains are prone to escalation in competition. To prevail in this environment, the Group's products must be competitive in terms of price, performance, quality and brand appeal. However, ensuring competitiveness is an inherently uncertain matter, and loss of product competitiveness could adversely affect the Group's operating results.

4. Rapid Rise in Materials Expenses

It is difficult for the Group to reflect rising prices of crude oil and basic materials in the sales prices of its products. Any further increase in the price of materials could thus adversely affect the Group's operating results.

5. Risks Associated with International Activities and Developing Business Overseas

The Group conducts sales activities extensively around the world. Consequently, there is a risk of terrorist attacks, riots, war, infectious diseases, natural disasters or other adverse events in regions where the Group's major clients, or operating bases, are located. The occurrence of such political or social risks could result in bans on the movement of employees and shipment of goods. Such a situation could cause delays in business activities or adversely affect the Group's operating results.

6. Natural Disaster

The Group implements measures to prevent disasters at production sites. However, natural disasters which cannot be averted through disaster prevention measures, such as a major earthquake, or a power outage that dramatically reduces energy supplies, or the closure of workplaces to employees who have contracted a new form of influenza or other disease, could hinder the Group's ability to manufacture products or result in the suspension of production, adversely affecting the Group's operating results.

7. Retirement Benefit Obligations

To minimize the risk of deterioration in pension asset investments affecting its operating results and financial condition, the Group has introduced a corporate pension fund centered on a cash balance plan and other similar systems. However, a downturn in financing conditions caused by a sudden change in the economic environment, or a shift in basic rates including the discount rate, and the assumed rates for mortality, retirement and salary increases, could adversely affect the Group's operating results.

8. Change in Foreign Currency Exchange Rates

The Group conducts business in Japan and overseas. For the purpose of preparing the consolidated financial statements, accounts denominated in functional local currencies in each region are converted to yen. Even if there is no change in the value of these accounts on a local functional currency basis, the value could change after conversion to yen.
As regards sales of proprietary products handled by the Group, although changes in foreign exchange rates impact on the manufacturing and procurement costs, these changes only have a negligible impact. Generally speaking, sales of proprietary products are adversely affected by an appreciation of the yen and benefit from a depreciation of the yen against other currencies.
For trading transactions, where transactions involve currencies other than the functional currency, the Group, in principle, mitigates the impact of changes in foreign exchange rates by conducting both sales and procurement in the same currency. However, changes in foreign exchange rates do have an impact on the price competitiveness of products, and as a result could affect the Group's operating results. The Group takes initiatives to secure the future cash flows of forecasted transactions and firm-commitment transactions, but changes in foreign exchange rates could affect the Group's financial condition.

9. Intellectual Property-Related Risk

The Group is engaged in activities for the acquisition, use and clearance of intellectual property based on business strategies. As a member of the Hitachi Group, Hitachi High-Technologies is engaged in activities in collaboration with Hitachi, Ltd. Problems relating to the infringement of intellectual property rights in particular are inherently difficult to predict. The Group could incur considerable expenses in defending itself in a dispute with a third party over claims based on intellectual property rights, which could adversely affect the Group's operating results, so we focus on intellectual property clearance activities.

10. Information Security

The Group maintains various confidential information regarding the operation of its businesses, including personal information, technology, sales, and other operations. Although the Group endeavors to securely manage this personal and technical information, there is a risk that this information could be leaked due to unforeseeable circumstances. Any leak of information could lead to a loss of trust in the Group or a large payment of damages, which could adversely affect the Group's operating results.

11. Litigation and Other Legal Proceedings

In conducting its business operations, the Group faces the risk that business partners or third parties may instigate litigation or other legal proceedings against it. Any such action resulting in a demand for damages that involves a very large sum and is impossible to foresee could adversely affect the Group's operating results.

12. Faulty Pile Work

Pile work that the Company undertook as the primary subcontractor on a condominium in Yokohama City (here inafter, "Construction Project") was found to have been partially faulty. Currently, the Company is working together with Sumitomo Mitsui Construction Co., Ltd. (contractor) and Asahi Kasei Construction Materials Corporation (secondary subcontractor) to move ahead on the investigation into details of how the faulty work occurred.
On January 13, 2016, instructions under Article 28, Paragraph 1 of the Construction Business Act, business suspension order under the provision of Article 28, Paragraph 3 of the Construction Business Act and suspension of designation were given or ordered to the Company by the Ministry of Land, Infrastructure, Transport and Tourism, Kanto Regional Development Bureau in relation to the Construction Project. The Company gravely accepts these dispositions, and to regain confidence, strives to ensure that all laws and regulation are strictly complied with and to strengthen relevant systems to prevent similar incidents in the future.
Furthermore, the impact of the faulty pile work incident on financial statements currently remains unknown.