Matters related to business conditions, accounting conditions, and other items described in the securities report that may materially affect investors’ decision-making include the following. Forward-looking statements in the text represent the Group’s judgment as of the end of the current consolidated fiscal year.
The Group’s products are widely used in automobiles, various types of industrial machinery, and buildings and structures. In the event of a global or domestic economic recession or a slowdown in economic growth, demand for the Group’s products—including production volumes and numbers of construction projects—may decline and adversely affect the Group’s business performance and financial position.
Steel, copper alloys, resin-based raw materials and other key materials used in the Group’s products are subject to price fluctuations resulting from supply-demand conditions, exchange rate fluctuations, and other factors. In addition, some materials are sourced from a limited number of suppliers.
Recently, in addition to the materialization of risks associated with rising global raw material costs, tariff policies, and procurement disruptions caused by international conflicts, the Group also faces potential procurement risks related to economic security concerns. To respond flexibly to market fluctuations in raw material prices and procurement risks, the Group continuously reviews its supply chain and implements cost reduction measures through production rationalization, diversification of suppliers to secure high-quality raw materials in a timely manner and sufficient quantities, and selection of alternative materials.
In addition, the Group seeks to mitigate the impact by closely monitoring competitors’ pricing trends and appropriately reflecting cost increases in sales prices. However, if market prices change more rapidly than anticipated, the Group’s business performance and financial position may be adversely affected.
The Group may be affected by exchange rate fluctuations arising from transactions denominated in foreign currencies. In addition, when preparing consolidated financial statements, the financial statements of overseas affiliated companies are translated into Japanese yen. Even if the value of foreign currency-denominated assets and liabilities held by overseas affiliated companies remains unchanged, foreign exchange fluctuations may affect the Group’s business performance and financial position.
For individual foreign currency transactions, the Group seeks to minimize exchange rate risks by promoting local procurement of raw materials and utilizing hedging instruments such as currency swap agreements. Nevertheless, exchange rate fluctuations exceeding expectations may adversely affect the Group’s business performance and financial position.
The Oiles Group operates manufacturing and sales bases globally and conducts transactions with overseas affiliated companies.
Although such transactions are conducted at appropriate prices, unexpected tax liabilities may arise due to amendments to tax laws in relevant countries or differences in interpretation with tax authorities, which may affect the Group’s business performance and financial position.
The Group complies with tax laws and regulations in each country and strives to ensure appropriate tax management with the assistance of tax professionals. However, significant and unexpected changes in tax legislation in various countries may adversely affect the Group’s business performance and financial position.
The Group has established local production systems in line with the overseas expansion of automobile manufacturers and currently maintains manufacturing and sales bases in North America, Europe, and Asia. As a result, sales to overseas customers account for 39.0% of consolidated net sales.The Group may be affected by economic recessions and resulting declines in demand in countries where it manufactures and sells products, as well as by changes in political, social, and economic systems in overseas markets.
In particular, geopolitical risks such as recent conflicts in Ukraine and the Middle East are recognized as important risks due to the magnitude of their potential impact. The Group seeks to minimize such risks through close cooperation between the Corporate Strategy Department and business divisions responsible for overseas affiliated companies, ongoing information sharing and monitoring of overseas affiliated companies, and continuous analysis of developments in each country.
Nevertheless, unexpected and rapid changes in economic conditions or political, social, and economic systems in countries where the Group operates could adversely affect the Group’s business performance and financial position.
Sales related to the automotive industry account for 49.6% of the Group’s total sales.
To date, the Group has maintained relatively stable business performance through the superiority of its products, expansion into new applications, and global business development. However, the Group may be affected by CASE (Connected, Autonomous/Automated, Shared, and Electric), the entry of new market participants, changes in component configurations associated with shifts in industry structure, and significant changes in demand within the automotive market.
The Group is actively developing new technologies and products with a view to the future of the automotive industry, including CASE. Going forward, the Group intends to respond to industry transformation by expanding its technology domains and accelerating development activities.
Competition is intense globally across all industries, including the automotive industry, which represents the Group’s principal customer base. Furthermore, business conditions have become increasingly challenging due to rising raw material costs and labor expenses.
The Group seeks to enhance customer satisfaction through the development of technologically superior, high-quality products, the provision of value-added proposal-based technical sales that help customers solve their challenges, and the expansion of its product lineup.
However, the Group’s business performance may be adversely affected if customers demand price reductions due to the expansion of low-priced products offered by emerging-country manufacturers and other competitors, or if increases in raw material costs and labor expenses cannot be adequately offset through cost reductions and appropriate price pass-through measures.
The Group has identified “the development and provision of advanced products and technologies that contribute to solving social issues” as one of its major issues (materiality) for achieving sustainable growth.
Through research and development activities involving its two core technologies—tribology technology related to Friction, Wear, Lubrication and damping (vibration control) technology—the Group actively files applications for patents, trademarks, and other intellectual property rights both in Japan and overseas. These intellectual property rights serve as barriers to market entry and contribute to maintaining a competitive advantage. At the same time, however, there is inherent risk that competitors may enter the market after the expiration of patents and other intellectual property rights.The Group seeks to prevent such entry by obtaining new patents and related intellectual property rights, including peripheral patents, through technology and product development. Nevertheless, if competitors enter markets relating to products that account for a substantial portion of the Group’s net sales, the Group’s business performance may be adversely affected.
In addition, if the Group is accused by a third party of infringing intellectual property rights and becomes involved in litigation, the Group may incur not only legal expenses but also liabilities for damages or injunctions against manufacturing and sales activities. Should such events result in the loss of access to a market, they could have a significant impact on the Group’s business development and performance.
To address these risks, the Group conducts thorough investigations and reviews from the product development stage in accordance with its intellectual property management regulations, including assessments of potential infringement of third-party intellectual property rights and opportunities for protecting new inventions. Furthermore, know-how is appropriately protected and managed based on the Group’s confidential information management regulations.
Sales from the Group’s structural devices business account for 16.3% of total sales.
Sales in this business may be affected by factors such as the level of public investment budgets in Japan.
The Group is working to strengthen its business structure so that it is less susceptible to fluctuations in public investment through improvements in business profitability and other measures. In addition to bridges and buildings, the Group is also engaged in product development aimed at creating new core markets that will serve as future pillars of growth.
The Group’s products are utilized in a wide range of machinery and industrial fields that require high precision and labor savings, as well as in end products. In addition to automobiles, the Group’s products are widely adopted in social infrastructure sectors such as railway vehicles, water turbines, water gates, and bridges, as well as in seismic isolation and vibration control devices for various buildings and residences.
To ensure that its quality assurance systems satisfy the requirements of all customers and markets, the Group has obtained certification under international quality management standards (ISO 9001 or IATF 16949) at its operations in Japan and overseas. Furthermore, the Group maintains strict controls to comply with customer-specific quality standards and requirements.
In product development, departments including R&D, production techniques, manufacturing, and sales identify quality issues from their respective perspectives at an early stage and utilize information from past internal and external quality incidents to resolve them. Prior to launching new products, the Group seeks to minimize risks by verifying quality through design reviews of both product designs and manufacturing processes.
However, if products contain unknown material defects that result in accidents, recalls, or suspension of customer production activities, the Group’s social credibility may be damaged. In addition, substantial compensation expenses may adversely affect the Group’s business performance and financial position.
The Group maintains global product liability insurance coverage; however, such insurance may not be sufficient to cover all losses or damages.
The Group maintains manufacturing and sales bases throughout the world and strives to ensure stable product supply through planned production that takes into account market demand and the capabilities of existing facilities. Production equipment is adjusted to suit the specific products manufactured at each site. In addition to periodic maintenance, the Group continuously pursues innovation in production and manufacturing technologies. Some facilities, however, inevitably reach replacement age after years of operation.
While the Group continues to invest in facilities and systematically replace aging equipment to maintain stable production, unexpected equipment failures, fires, or natural disasters could halt production operations and disrupt product supply, thereby adversely affecting the Group’s business performance and financial position.
To address these risks, the Group will continue to replace critical equipment in a planned manner and develop production systems with appropriate redundancy based on assessments of potential business impacts.
Environmental Risks
The Group has identified environmental initiatives as one of its major issues (materiality) for sustainable growth. Under the Oiles Group Environmental Policy, the Group strives to reduce environmental impact and conserve water resources in order to protect the global environment.
To comply with environmental laws, regulations, and other requirements related to global warming, water pollution, industrial waste, hazardous substances, soil contamination, and other environmental issues, the Group has established and operates an environmental management system in accordance with ISO 14001.
Nevertheless, unforeseen circumstances may result in legal or social liabilities. In such cases, response costs may arise and the Group’s reputation may be negatively affected.
In addition, climate change issues have become increasingly important. As reflected in the Japanese government’s declaration in 2020, carbon neutrality by 2050 has become a global trend. In addition to the risk of damage to the Group’s operations caused by climate change-related disasters, insufficient environmental initiatives could result in the loss of customer trust and exclusion from customers’ supply chains as the world moves toward decarbonization. The Group could also lose the confidence of shareholders and investors who place importance on ESG initiatives.
Based on this recognition, the Group will continue contributing to reducing environmental impact through its products and technologies while promoting environmental initiatives throughout the Group, including reductions in CO₂ emissions. The Group has established an environmental target of reducing total CO₂ emissions by 46% compared with FY2013 levels by FY2030. Furthermore, in addition to this target, the Group established a goal beginning in FY2023 of achieving carbon neutrality by 2050 throughout the Group (Scope 1 and Scope 2 emissions).
Labor & Human Resources Risks
Based on the belief that “human resources are the source of corporate value,” the Group actively invests in human capital and promotes recruitment, human resources development, and diversity initiatives. By creating a workplace culture in which individuals with diverse backgrounds can fully demonstrate their abilities and individuality, the Group seeks to enhance employee motivation and strengthen its business execution capabilities.
However, corporate growth may be constrained and business performance may be adversely affected if the Group is unable to secure talented personnel due to the decline in the working-age population and labor market conditions, if skills and expertise are not properly passed on because of labor shortages, if capable employees leave the Group, or if investments in human capital and their effectiveness prove insufficient.
Under these circumstances, the Group strives to recruit talented individuals in management, technology development, manufacturing, sales, and other functions through active hiring of both new graduates and experienced professionals throughout the year.
The Group also continues to enhance the environment that supports employee engagement and is actively investing in related initiatives.
Information Security Risks
The Group possesses confidential information related to R&D, production, sales, and other business activities, as well as personal information belonging to customers and employees.
To manage such information appropriately, the Group implements information management systems based on internal regulations and provides employee education. In addition, the Group has obtained certification under the international information security standard ISO 27001:2013 and strives to ensure stable operation of its information security systems.
In addition to risks associated with the leakage of confidential or personal information, major disruptions to information systems caused by unauthorized access through cyberattacks, natural disasters, accidents, computer viruses, or other causes could adversely affect the Group’s business operations, business performance, and financial position.
In response to the increasing risks surrounding information security, the Group is further strengthening its security framework through network redundancy, backup systems for critical data, storage across multiple data centers, and the introduction of incident detection systems. The Group also promotes comprehensive cybersecurity measures, including continuous security education and training for all officers and employees.
Risk of the Eventuality of Legal Proceedings, Disasters, etc.
Legal Risks
The Group is subject to a broad range of laws and regulations in Japan and overseas, including antitrust laws, export control regulations, and anti-bribery requirements.
If compliance with such laws and regulations is inadequate and violations occur, or if past business activities become subject to legal challenges, the Group could face penalties, administrative sanctions, or other consequences. Damage to the Group’s reputation and corporate image could also adversely affect business performance.
To ensure compliance, the Group has established the Oiles Group Corporate Conduct Charter, the Oiles Group Corporate Code of Conduct, and the Oiles Group Compliance Handbook, and provides various training programs for officers and employees.
Risk of Events such as Disasters, Infectious Disease Outbreaks, and Terrorist Attacks Affecting Business Continuity
The Group operates manufacturing and sales bases not only in Japan but also in the Americas, Europe, and Asia. Large-scale earthquakes, floods, fires, global outbreaks of infectious diseases (pandemics), terrorist attacks targeting companies, and political instability caused by conflicts may disrupt raw material procurement and logistics networks or damage management resources such as production facilities and human resources.Such events may interrupt supply chains and halt product shipments, significantly hindering the Group’s ability to continue business operations. Although these events do not occur frequently, they could have a substantial impact on the Group’s business performance and financial position if they were to occur.
To address these risks, the Group has established a Business Continuity Plan (BCP) to prepare for major earthquakes and other unforeseen events. In accordance with predefined emergency action plans, the Group works to ensure rapid recovery and stable product supply through advance measures such as damage mitigation, diversification of procurement sources, and evaluation of alternative materials.
Although COVID-19 has largely subsided, the Group will continue to maintain preparedness for future pandemic risks while considering the health and safety of employees and the potential impact on business continuity.
Insurance may cover part of the losses resulting from natural disasters and similar events; however, such coverage may not compensate for all losses. The Group regards these matters, including counterterrorism measures, as important management priorities and will continue to take every possible precaution, although it is impossible to eliminate all risks completely.
