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Risks Impacting Operations

The following matters regarding risks associated with the businesses of the JGC Group could potentially have an effect on the judgments and decisions of investors.

Risks with Overseas Causes

Overseas businesses generate more than 80% of the JGC Group’s total net sales. Such businesses are subject to country risks, including political unrest, wars, revolutions, civil strife, terrorism, changes in economic policy, default on foreign debts, and changes in exchange and taxation systems. To minimize the effects on its businesses arising from these risks, the JGC Group continuously reviews and reinforces its risk management system, carries trade insurance, recovers receivables as early in a project as possible, forms joint ventures, and takes various other steps. However, when changes in the business environment are more radical than anticipated, and projects are canceled, suspended, or delayed, the possibility of a negative impact on JGC’s performance arises.

Risks Affecting Project Execution

Almost all contracts for projects in which the JGC Group participates are lump-sum, full-turnkey contracts. However, to enable hedging of some of the risks in these contracts, the Group uses cost-plus- fee contracts and contracts based on the cost disclosure estimate method, depending on the project. The Group draws fully upon its past experience to anticipate and incorporate into each contract provisions for dealing with the risks that threaten to arise during its execution. When confronted with unforeseen impediments to the execution of a project, including sudden steep rises in the costs of materials, equipment, machinery and labor, outbreaks of disease, and natural disasters, or if the JGC Group’s actions or a problem during project execution should cause a major accident, the economics of a project can be adversely affected, which can have a negative impact on the JGC Group’s performance.

Risks Affecting Investing Activities

The JGC Group primarily invests in resource development businesses, especially those for oil and gas; new fuels businesses; and water and power generation businesses; as well as urban development and infrastructure development businesses. In executing new investments and reinvestments, the Group carries out risk assessments, as well as the monitoring of existing businesses, thereby conducting appropriate risk management.

Risks of Changes in Exchange Rates

Almost all of the income from JGC Group sales generated by overseas businesses is paid in foreign currencies. To hedge the associated exchange rate risk, we have introduced countermeasures, including signing project contracts denominated in multiple currencies, conducting overseas procurement, ordering in overseas currencies, and entering into foreign exchange contracts. However, sudden exchange rate fluctuations could negatively affect the JGC Group’s performance.