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Business Related and Other Risks

Risks that may affect the business results and financial position of the azbil Group are summarized below. These risks are discussed by the azbil Group Comprehensive Risk Committee and the Board of Directors, and are addressed by our comprehensive risk management system. We also take measures to mitigate and respond to risks in the related business departments. Information contained in the following that pertains to the future is deemed valid by the Company as of March 31, 2019. In addition, the risks stated below are descrived in the 97th Annual Securities Report ("Business-Related and Other Risks"), and each potential risk event has been adequately analyzed, evaluated, and addressed.

1. Risk related to the Business Environment

Changing market conditions in specific regions and key business sectors, including construction and manufacturing, may have an impact on capital investments, which, together with major economic recession, could have an adverse impact on the Group#8217;s operations, business results, or financial position.

2. Risk related to Growth in a Competitive Environent

(1) Risk related to business management

Risk that inadequate response to business opportunities that may arise from changes in social conditions and technological innovation, etc., could lead to the loss of competitive advantage.

(2) Risk related to Technology

Risk that the loss of competitiveness led by misreading of technological trends, slow R&D progress, or failure to respond to open innovation and technological development, etc., delay in launching new products, and sluggish sales, etc., could affect operations or business results.

3. Risk related to Product Quality

Risk that costs incurred by defective products, systems and services and the resulting damage to the corporate reputation could affect operations, business results, or financial position.

4. Risk related to Global Operations

(1) Risk that unforeseen situations, such as regional political and economic upheaval, changes to laws, terrorism, or differences in business practives, etc., could have an effect on operations, business results, or financial position.

(2) Risk that delay in planned business expansion due to regional peculiarties and the like could affect the Building Automation (BA) business.

(3) Risk that sharp foreign exchange fluctuations, which may impact net ssales, prices of raw materials and parts, SG&A expenses, and the like, could have an effect on operations, business results, or financial position.

5. Risk related to Securing and Developing Human Resources

(1) Risk that obstacles to securing, educating, and smoothly deploying human resources needed to address business structural changes could lead to declines in productivitiy or other performance indicators.

(2) Risk that delays in securement, education, and deployment of human resources needed for overseas business development may inhibit achievement of business growth targets.

6. Risk related to Information and IT Security

(1) Risk that leakage of confidential business information or personal information due to unforeseen circumstances could affect business performance or financial position, or cause damage to the corporate reputation.

(2) Risk that terrorist and other unexpected cyberattacks could affect the Group#8217;s business operations.

7. Risk related to the Environment, Climate Change, and Natural Disasters

(1) Risk that damage to production and interrupted supply of products and services stemming from large0scale disasters and other unforeseen events could have an effect on business results or financial position.

(2) Risk that events beyond those assumed in the BCP will have a negative impact on business continuation, which could have a major effect on business results or financial position.

8. Risk related to Compliance

(1) Risk that violation of laws (antitrust laws, construction industry regulations, labor standards, bribery laws, and the like), including violation that results from failure to address regional and industry characteristics of newly entered business, and delays in responding to new laws and revisions of existing laws, amy result in administrative penalties and fines, which could affect business results or financial position.

(2) Risk arising from secondary events, such as business bans and rejection by customers; risk that violation of laws and guidelines could affect business results or financial position; risk that inappropriate acts by the company and/or its business partners will damage the reputation of the Group.