This section outlines the main risks related to our Group’s business and other activities that may significantly affect investors’ decisions. We also provide information on matters that may not be considered critical business risks but are important for investors’ understanding of our Group’s business, in line with our commitment to proactive disclosure.
Our Group is aware of the possibility of these risks and is committed to preventing them where possible and responding appropriately if they occur.
Please note that the information below and any forward-looking statements reflect the Group’s judgment as of the end of the current fiscal year.
(1) Dependence on Specific Markets
In the fiscal year ending March 2025, approximately 80% of our Group’s revenue came from filters for construction machinery. We expect this proportion to remain high in our medium- to long-term business plans. If the performance of construction machinery manufacturers deteriorates due to factors such as an economic slowdown or reduced public investment, or if structural changes in construction machinery affect our hydraulic filters, or if new technologies replace hydraulic power, sales of filters for construction machinery could decline, which may adversely impact our Group’s overall performance.
(2) Competition with Other Companies
Our Group expects the excavator market, a major market for our products, to expand in emerging countries over the medium- to long-term.
In these markets, the rise of counterfeit and low-cost products is anticipated. We will continue to focus on supplying genuine filters and related parts to major construction machinery manufacturers to ensure stable distribution. However, if sales of counterfeit or low-cost products increase in emerging markets, sales of construction machinery filters may decline, which could impact our Group’s overall performance.
(3) Foreign Exchange Rate Fluctuations
Our Group operates production sites in Japan, the Philippines, and Vietnam, and maintains sales offices in Japan, the United States, Belgium, Thailand, and China.
Foreign currency-denominated assets and liabilities arising from our Group’s business activities, such as raw material procurement, logistics, and sales, as well as from our overseas operations, may be affected by fluctuations in exchange rates and could impact the Group’s operating results.
(4) Government Regulations and Policies
Our Group’s business activities are affected by policy trends and country-specific regulations in the countries where we operate. If new tariffs, currency controls, or tax systems are introduced in the future in the course of our business development, the resulting compliance costs could impact our Group’s performance.
(5) Procurement, Production, and Logistics
Components and materials account for a large portion of our Group’s product costs, and their procurement is affected by market fluctuations. Rising prices of parts and materials can increase our material costs and manufacturing costs.
Shortages of parts or materials, or disruptions due to supplier bankruptcy or production stoppages, may make timely procurement and production difficult, potentially reducing production efficiency. Our Group manages rising material costs through other cost-reduction measures and selling price adjustments, and addresses procurement and production issues by closely coordinating with the relevant departments. Nevertheless, unexpectedly high material price increases or severe supply constraints could affect our Group’s performance.
In addition, our Group imports parts and materials for production, and exports products to overseas customers through our company and sales subsidiaries. Changes in the external logistics environment, such as fluctuations in container ship demand, could lengthen transport lead times or increase shipping and logistics costs, which may impact our Group’s performance.
(6) Production Planning and Inventory Management
In the fiscal year ending March 2025, approximately 80% of our Group’s revenue came from filters for construction machinery, most of which are OEM products.* Our products for the construction machinery market are sold through manufacturers rather than directly to sales agents who serve end customers. As a result, the production and sales plans of machinery manufacturers influence our Group’s production planning.
We regularly exchange information with manufacturers to stay informed about market trends, production schedules, and parts sales plans, and continuously monitor and analyze inventory to maintain appropriate levels. However, sudden changes in order quantities or delivery schedules from manufacturers may lead to excess inventory, which could affect our Group’s performance and financial condition.
*Note: OEM refers to manufacturing products under the brand of the commissioning company.
(7) Product Quality
Our Group has established a quality management system and manufactures products according to strict standards. However, if delivered products fail to meet customer specifications or requirements, or are otherwise nonconforming, this could lead to serious quality claims.
Defects that result in major claims or product liability may incur significant costs, damage our Group’s reputation, and affect relationships with customers, potentially reducing sales and negatively impacting our Group’s performance and financial condition.
(8) Natural Disasters and Other Risks
Our Group operates globally, with development, production, and sales sites overseas. Production sites are located in Japan, the Philippines, and Vietnam, with approximately 60% of construction machinery filter production (based on sales value) concentrated in the Philippines in the fiscal year ending March 2025. These sites face risks from natural disasters such as earthquakes and floods, as well as war, terrorism, or third-party interference. While our Group has implemented risk management measures for potential disasters, significant events could cause substantial damage that cannot be quickly repaired. Such events may disrupt procurement, production, sales, or service activities, potentially affecting our Group’s performance and financial condition.
(9) Information Management
In the course of our business activities, our Group handles customer information and possesses confidential business and technical information. We exercise the utmost care in handling all types of information and maintaining its confidentiality. We have established management systems to protect against unauthorized access, alteration, destruction, leakage, or loss, and have implemented reasonable technical measures to ensure appropriate information security.
However, in the event of an information leak or similar incident, our Group’s reputation and credibility could be adversely affected, potentially impacting our Group’s performance and financial condition.
(10) Intellectual Property Rights
Our group protects its proprietary technologies and innovations through patents and other intellectual property rights. However, in some regions, our rights may not be fully protected, and third parties could manufacture or sell products similar to ours, potentially causing damage to our group.
In product development, we strive to avoid infringing on the rights of others, including intellectual property rights, by checking existing third-party rights. Nevertheless, we cannot completely rule out the possibility that a third party may claim ownership or infringement of intellectual property rights against our group. If such claims result in compensation or injunctions, they could affect our group’s business performance and financial condition
(11) Litigation and Disputes
In our business activities, we strengthen internal controls, enhance compliance with laws, regulations and social ethics, and work to reduce various risks. We also seek advice from external experts, such as lawyers, when necessary.
However, regardless of whether laws are violated, there is a possibility that lawsuits may be filed, which could affect our group’s business performance and financial condition.
As of the date of this report, no litigation or disputes have arisen.
(12) M&A and Business Alliances
Our group recognizes that M&A and business alliances are important and effective strategies for future business growth.
When pursuing M&A or alliances, we carefully evaluate target companies and conduct thorough due diligence* on their financials, contracts, and other matters to minimize risks. However, it is not always possible to prevent unforeseen issues, such as the discovery of contingent liabilities after an acquisition or alliance is completed. If goodwill arises, we assume that the acquired business can consistently generate profits exceeding the amortization of the goodwill. However, changes in business conditions after the acquisition may hinder the original business plan, potentially resulting in impairment losses related to goodwill, which could affect our group’s financial performance and position.
*Note: Due diligence refers to the comprehensive evaluation of a target company’s legal, financial, business, HR, and environmental aspects when conducting transactions such as M&A.
(13) Risk Related to Infectious Disease Spread
Our group continues business activities, including production, at our sites in Saga, Osaka, the Philippines, and Vietnam while implementing strict safety measures, ensuring a stable supply of products to our customers. However, the spread of infectious diseases could still impact our group’s business performance and financial condition.
