Management system

Business and Other Risks

The Mitsubishi Electric Group (hereinafter "the Group") is involved in development, manufacturing and sales in a wide range of fields including Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances and Others, and these operations extend globally, not only inside Japan, but also in North America, Europe, Asia and other regions. Therefore, various factors may affect actual financial standings and operating results of the Group.

Major factors that may affect actual financial standings, operating results, and the decision of investors are as follows:

  1. (1) The impact of COVID-19

    The Group is executing business in countries and regions affected by COVID-19. The Group is implementing countermeasures as it continues its business operations while taking adequate precautions against the spread of infections. However, if the disease continues to spread or the pandemic becomes further protracted, declines in demand and other factors may adversely affect the Group’s performance.

    The global economy is expected to make progress in recovery in general as an effect of political measures in various countries and regions, particularly the U.S. and China, although the impact of COVID-19 on the economy remains uncertain. Nonetheless, the Group’s performance may be affected to a greater extent than currently expected, due to delays in the situation returning to normal, status changes in market recoveries thereafter, and changes in demand structure following sudden changes to societal values or behavior.

  2. (2) Any change in worldwide economic and social conditions, as well as laws, regulations, taxation and other legislation

    The Group conducts business in a wide range of fields as diverse as Energy and Electric Systems to Home Appliances, and roughly 40% of the Group’s revenue are from overseas. Domestic revenue includes products not only used in Japan but also that are incorporated in customers’ products and exported overseas. Therefore, if economic growth is slower than expected due to economic and social conditions in various countries and regions, and there are changes in demand for the Group’s products or sales of customer products containing the Group’s products, this may adversely affect the Group’s performance.

    Furthermore, roughly half of the Group’s overseas revenue are to Asian markets. A slowdown in the Asian economies due to export industry stagnation or a slump in personal consumption resulting from the U.S.-China trade friction and National Defense Authorization Act trends, etc., may adversely affect the Group’s performance, especially in the Industrial Automation Systems business, due to changes in capital investment and sales trends of durable goods.

    To respond to the rapid changes in the economic security policies of various countries worldwide, the Corporate Economic Security Division, which is under the direct control of the president, investigates and analyzes policy developments and legal systems and conducts an integrated risk management from the viewpoint of economic security related to the entire Group’s exports, information security, investment, and development.

  3. (3) Foreign currency exchange rates

    In addition to North America, Europe, and China each accounting for roughly 10% of total Group revenue, the Group purchases imported materials that are denominated in U.S. dollars or euros, and sells export goods and purchases imported materials that are denominated in foreign currencies in its Asian production bases. The Group strives to avoid foreign currency exchange rate fluctuations through the use of forward exchange contracts, etc. However, sudden changes in exchange rates that cause major deviations from the exchange rates expected by the Group may affect the Group’s performance.

  4. (4) Balance of supply and demand of products and material procurement conditions

    Due to recent efforts in response to the arrival of the "new normal" and toward carbon neutrality, moves such as the adoption of 5G in the communications business and the electrification of automobiles are accelerating. Further, with the recovery from the economic stagnation caused by COVID-19 and the expansion of global demand against the background of economic measures undertaken in countries worldwide, the materials procurement environment is expected to see sharp rises in the prices of some parts and raw materials, as well as difficulties in procuring them. This may affect the production activities and the Group’s performance.

    In order to supply competitive products to the market, the Group aims to strengthen its cost improvement activities and to purchase components and raw materials at competitive prices. In addition, the Group will build a flexible and sustainable supply chain that is capable of responding to increasingly diverse risks and fortify its BCP measures for stable procurement that will enable production activities to continue.

  5. (5) Large-scale disasters including earthquakes, typhoons, tsunami, and fires

    The Group has numerous major facilities in Japan, including manufacturing facilities, sales offices, research laboratories, and the head office. Japan has suffered damage from many natural disasters (earthquakes, typhoons, tsunami and others) in the past, and such natural disasters may impact on the Group’s business activities in the future. Overseas as well, natural disasters may cause damage to business activities in the Group’s various locations and to supply chains.

    Further, large-scale natural disasters such as earthquakes, typhoons and tsunami may become even more serious in the future due to climate change. Such large-scale natural disasters, as well as fire and other disasters, may cause direct damage to facilities belonging to the Group or destroy them, in which case the Group’s business activities may be suspended, production and shipments may be delayed, or major losses may be incurred. Moreover, even if the Group’s facilities are not directly impacted by large-scale natural disasters, procurement could be impeded, and business activities could be affected.

    The Group will build a flexible and sustainable supply chain that is capable of responding to these increasingly diverse risks and fortify its BCP measures for stable procurement that will enable production activities to continue.

  6. (6) Stock markets

    The Group holds stocks that are determined to be necessary for business operations, taking into consideration maintaining and strengthening relationships with business partners. Falls in stock market prices may lower the value of marketable stocks held by the Group and reduce its pension assets.

    As a response to such risks, the Group makes a comprehensive judgment of the significance of its stockholdings, from the viewpoint of their profitability, business feasibility, holding risks, etc., and verifies and confirms them at the Executive Officers' Meeting and the Board of Directors every year. When stocks are judged to have a low holding significance, the Group considers the reduction thereof, such as by selling them, taking into consideration the situation of the companies concerned.

  7. (7) Information security

    If the Group’s confidential corporate information relating to sales, engineering, intellectual property, and other areas, as well as information entrusted to the company by its customers and stakeholders, were to be destroyed or leaked outside the Group due to infection by a computer virus, unauthorized access, or other unforeseen circumstances, or if the kind of cyber-attack that would affect factory production were to occur, this may affect the business activities and performance of the Group.

    In addition, if information systems were to malfunction due to large-scale failure to software or hardware, unknown vulnerabilities in the systems of the Group and systems outside the Group’s control, the disruption of communications services provided by external operators, large-scale disasters, or other causes, this may affect the business of the Group.

    As a response to such risks, the Group will promote activities to reinforce its information security infrastructure, strengthen its countermeasures to the latest patterns of cyber-attacks, which are becoming increasingly advanced and sophisticated, and maintain and enhance resilient information systems.

The above are forward-looking statements based on the judgment of the Company as of the date of submission of the Annual Securities Report (June 29, 2021).