Business Risks

Risks to our operations and financial affairs with the potential to significantly affect investor decision-making, as well as the measures taken to address such risks, are described below.

Recognizing the possibility that these risks could arise, in addition to making every effort to reduce their occurrence, the Group also endeavors to respond as quickly as possible to minimize the effects should they arise.

We have recognized the following risks as of March 31, 2026.

(a) Business trends and effects of economic, social and political changes

Global economic trends, social and political changes, trade protections, economic sanctions, diplomatic tensions, national energy policy shifts and oil, LNG and metal market price trends may adversely impact client or partner financial circumstances, causing them to terminate, postpone or change their investment plans and affecting the Group's business performance. In recent years in particular, geopolitical tensions stemming from wars and regional conflicts have persisted, leading to supply chain disruptions, fluctuations in energy and resource prices, logistical constraints, and the strengthening of regulations and sanctions by various countries, all of which are impacting major economies and market environments. Such a highly uncertain business environment may affect the Group's business outlook.

The Group closely monitors international developments and geopolitical risks, conducts business activities while carefully assessing project feasibility and order certainty, and seeks to appropriately share risks with customers. In addition, to prepare for sudden cancellations or delays in customer investment plans, backup projects are always incorporated into order plans. Furthermore, the Group actively engages in studies across a wide range of fields, particularly in new areas, and in non-EPC businesses to diversify business opportunities.

(b) Force Majeure events such as natural disasters including earthquakes, virus infectious disease, geopolitical risks and terrorism and conflicts

The occurrence of a natural disasters such as an earthquake, heavy rain, flooding or typhoon caused by global climate change, the spread of viral disease or a Force Majeure event such as an act of terrorism or armed conflict, may directly or indirectly result in damage to a worksite where there is an ongoing project, or to an office in Japan or overseas. Such risks can endanger workers' lives, delay the transport of equipment and materials to a worksite, or interrupt on-site work.

The ongoing geopolitical risks associated with events such as Russia's invasion of Ukraine beginning in February 2022, the armed conflict between Israel and Hamas starting in October 2023, and armed conflicts between the United States, Israel, and Iran in June 2025 and February 2026, as well as their potential spillover effects to other Middle Eastern countries, are further heightening global uncertainty and concerns over economic sanctions and fragmentation of the global economy. These conditions may adversely affect the Group's performance through deterioration in the financial condition of customers and joint venture partners, supply chain disruptions, and rising costs of equipment and materials.

Such global catastrophes endanger human life and we have established a Crisis Management Department, strengthened by externally hired security consultants, to compile and analyze data and evaluate the risk to employees in affected areas, such as on the NFE project in Qatar as we continue to closely monitor developments in the Middle East. The Group works collaboratively with clients and partners to establish emergency response procedures, to be implemented in the event of an emergency, to minimize the risk to all affected parties. We also develop Business Continuity Plans to improve our ability to continue operations through emergency safety drills.

(c) Risks related to partners

In the Group's business domains, we may receive an order jointly with partners by setting up a joint venture or a consortium based on project size and complexity and risk sharing. In the event of partners' default, deteriorated financial circumstances or other critical issues affecting their project execution capabilities, the Group may bear contractual joint responsibility and this may affect the Group's business performance. Our risk management process includes analyzing potential partners' financial circumstances and project execution capabilities prior to and after establishing partnerships to immediately identify and deal with risks.

(d) Surging equipment and materials costs

There is time lag between when a contract estimate is issued and when an order is placed. As a result, when there is a dramatic shift in the socio-political situation, such as an outbreak of wars and conflicts between nations and regions, we are exposed to the risk of an unforeseen increase in equipment and materials costs. Specifically, the price of steel, which is a major component in plant construction, can be greatly affected by fluctuating prices for coking coal and iron ore. It is also difficult to predict fluctuations in market prices for materials such as copper, nickel, aluminum, and zinc. There are also concerns that shipping rates may be affected by the surge in oil prices and higher insurance premiums.

To mitigate such risks, in addition to tracking market trends, the Group takes steps such as diversifying our suppliers and encouraging competition by ordering from suppliers around the world, early order placement for equipment and materials, and building good relationships with top-tier suppliers. Through discussions and negotiations with our business partners and stakeholders, such as clients, suppliers, and subcontractors, we are working to appropriately address the soaring equipment, materials and labor prices caused by global inflation.

(e) Difficulty securing workers, equipment, and materials

In plant construction, work may be delayed if we are unable to secure the necessary human resources such as construction workers, secure the necessary infrastructure, or procure the necessary equipment and materials as planned, or by supply chain disruption. There is a risk that additional expenditure may be required to recover lost time due to these factors.

In locations where the labor market is tight or where the climate is harsh, both in Japan and overseas, the Group mitigates the risk of an unexpected rise in construction costs through development of construction methods such as modular construction and by forming cooperative relationships with leading contractors and equipment and materials suppliers.

If construction is unavoidably suspended due to the worldwide spread of some infectious disease or epidemic other than COVID-19, a strike, or some other unforeseen occurrence, we will work with our clients and relevant local agencies on appropriate measures to minimize the impacts.

(f) Risks associated with changes in the business environment arising from climate change

Climate change is affecting society on a global scale, and it is one of the most important social challenges confronting the entire global community. The Group recognizes that the resulting changes to client investment environments and to their business portfolios by physical risks and transition risks could have a significant impact on our operations and business strategy.

The Group is addressing these challenges by formulating business plans that closely monitor the energy situation, review climate change policy, laws and regulations in each country, and by obtaining the latest information in a timely and appropriate manner via our government, agencies and client networks in order to recognize the requirements of complicated and developed societies and client challenges and solve them accordingly.

Climate change can also be viewed as a new business opportunity. The business environment in which the Group operates is undergoing significant changes. These include advances in faster decarbonization and a carbon recycling society and an accelerated transition to a hydrogen-based society as well as the increasingly widespread adoption of low-carbon and renewable energy, including LNG. As a result of these changes, major clients are overhauling their business strategies and the Group sees prospects for growth thanks to new market opportunities. In view of the above, we continue to transform our business portfolio in response to society's demand for reduced environmental load.

Since our foundation, we have demonstrated an ability to optimize solutions for complex constraints and challenges. In EPC execution, we rely on this ability to optimize engineering and ensure quality, and the application ability of new technologies fusing basic research and EPC expertise. By leveraging these strengths, we will accelerate the transition to a carbon-free society including hydrogen energy and contribute to achieving carbon neutrality by 2050 through a combination of reduction and circularity.

(g) Plant accidents

Should a major accident such as explosion or fire arise at a plant built or under construction and the Group is determined to be at fault, our liability for damage compensation could affect our business results.

With safety design and construction site accident prevention as top priorities, the Group takes all possible quality control, construction safety management, and other measures to prevent such unforeseen circumstances from arising. In addition, we seek to mitigate such risks by obtaining appropriate insurance coverage and securing contract terms that reasonably share the risk of such losses with the client. The Group is committed to fostering a culture of safety and we collectively refer to our various initiatives to ensure construction safety as 'C-Safe', which stands for Chiyoda's Safety Culture.

(h) Currency risk

Because amounts to be paid for equipment, materials, and subcontracted work for overseas projects can be in currencies that are different to our client payments, fluctuating exchange rates could affect our business results.

The Group endeavors to mitigate currency risk by receiving payments for work in the currencies in which we expect to make payments ourselves and also through forward currency exchange contracts.

(i) Compliance violations

In conducting business both in Japan and overseas, the Group is required to comply with laws and regulations applicable to the countries and regions where its headquarters, subsidiaries, offices, and project execution sites are located. If any violation of, or suspected violation of, such laws or regulations were to occur, the Group could face criminal or administrative penalties, restrictions on business activities, or reputational damage, which could have a significant adverse impact on business execution and performance.

To prevent such violations and avoid circumstances that may give rise to suspicion, the Group has established the "Chiyoda Corporation Group Code of Conduct" as guidelines for all officers and employees, and promotes thorough understanding and compliance through training and other initiatives. In particular, for high-risk areas such as bribery and corruption, cartels and bid rigging, harassment, and export controls, the Group has established and operates internal rules and regulations to ensure strict compliance with laws and regulations.

Furthermore, by establishing and operating an internal reporting system and developing an investigation and response framework after any incidents are discovered, we are working to ensure the early detection of activities that violate laws and regulations, as well as their correction and prevention of recurrence.

(j) Information security threats

The Group controls a large volume of client and counterparty information that is necessary to execute our business, and we also possess confidential information about technologies, sales, and other aspects of our business. Much of our core work and commercial activities are carried out making full use of state-of-the-art IT systems at various locations around the world. We mitigate risks by reinforcing protective measures to prepare for cyberattacks on important data system and network installations. However, an unforeseen event could cause a system failure, leak of confidential information, cyber fraud, or loss of important business information that could affect our business. Cyberattack risks on companies have recently increased.

Our headquarters and certain group companies have obtained ISMS*1 certification. Based on the ISMS certification, NIST CSF*2 and so on, the Group is establishing and strengthening a system that is conscious of information security in the supply chain. The Group works to mitigate these risks through rigorous information security management practices, such as regular education and audits.

(k) Business investment losses

The Group conducts business investments such as establishing new companies and investing in or acquiring existing companies. Such investments may involve substantial capital contributions or the provision of credit, including loans and guarantees, to investees. As a result, changes in the business environment or market conditions may prevent investees from achieving planned profitability, lead to investment-related losses due to deteriorating performance, or necessitate additional investments or financing.

In determining whether to make investments or provide financing, the Group conducts thorough prior examinations based on internal standards and rules, carefully assessing business feasibility, strategic significance, risks, returns, and the Group's financial capacity relative to potential loss risks. After execution, the Group continuously monitors the progress of investees' business plans and management environments and, when necessary, provides support in terms of human resources or funding, thereby striving to avoid or mitigate losses related to business investments.

1. ISMS: Information Security Management System
2. NIST CSF: Cybersecurity Framework issued by National Institute of Standards and Technology to improve cyber security for critical infrastructure