EIKEN INDUSTRIES CO.,LTD.

Automotive filters account for approximately 96% of the Group's net sales, but the spread of next-generation vehicles such as fuel cell vehicles and electric vehicles may render filters for internal combustion engines unnecessary. This is a risk that could shake the very foundation of the business base, and the Development Department is taking the lead in information gathering including M&A, new product development, and new business development.

The Group has a highly concentrated business structure in which automotive filters account for approximately 96% of net sales, meaning that changes in the market environment directly affect overall performance. The Combustion Equipment business accounts for only the remaining approximately 4%, leaving limited diversification of the business portfolio. Although the Group is promoting new business development from multiple angles, its dependence on the automotive filter business remains high at present.

Inexpensive automotive filters produced in Southeast Asia and elsewhere are increasing year by year, and cost-based competition has become extremely intense. If the distribution of lower-priced products beyond expectations or a sharp increase in sales volume of such products occurs, it could have a material impact on the Company's profitability and market share. As countermeasures, the Company is working to establish a high-quality, low-cost production system and to expand sales through information gathering and proposal-based sales activities.

The procurement of raw materials depends on supply from specific business partners, and there is a risk that production activities could be disrupted if supply decreases or becomes difficult due to a suspension of operations at a business partner or other causes. As countermeasures, the Company maintains appropriate inventory levels of parts and raw materials and works to secure a stable procurement system by strengthening relationships with business partners.

If raw material prices rise sharply, there is a risk that profitability could deteriorate significantly if efforts to reduce manufacturing costs alone cannot absorb the increase and it becomes difficult to pass the increase on to selling prices. The Company strives to maintain optimal pricing through strengthened relationships with business partners, but a response may be delayed in the event of sudden changes in market conditions.

If unforeseen product defects occur and result in product liability claims or recalls, there is a risk that net sales could decline due to increased response costs and loss of credibility. The Company covers the financial impact of such risks to a certain extent through product liability insurance, and has established a quality assurance system through the operation of a quality management system based on ISO9001 certification.

Securing and developing excellent human resources necessary to carry out future business strategies is recognized as an important issue, and there is a risk that business growth could be constrained if the Company is unable to secure the desired talent due to intensifying competition for recruitment and other factors. As countermeasures, the Company is working on human resource development through school visits and company information sessions by HR personnel, promotion of new graduate and mid-career hiring, and in-house training programs.

The Company's production facilities are concentrated in Omaezaki City, Shizuoka Prefecture, and there is a risk that a massive Nankai Trough earthquake could damage the production facilities and cause serious disruption to production activities. As countermeasures, in addition to conducting regular emergency drills and equipment inspections, the Company has formulated a BCP (Business Continuity Plan) to build a system for business continuity and early recovery in the event of a disaster.