Business Risks

The main risks that could affect AMADA HOLDINGS's operating results, stock price and financial position are as follows.
The matters described below do not represent all of the potential risks relating to the AMADA Group's business.

(1) Trends in the economy and market environment

The AMADA Group's main business is the manufacture and sale of metalworking machinery and metal machine tools, and tools, accessories and components (consumables, electronic equipment, etc.) related to these products.

The products the AMADA Group sells are used as production equipment for manufacturing processes in a wide range of areas, including transport equipment, home appliances, information and communication equipment, general machinery and building materials. As a result, the Group tends to be less exposed to changes in the business climate in any one industry, but a shift in capital investment in the industry as a whole may affect its performance.

(2) Overseas development

The AMADA Group has responded to the globalization of its markets by developing production and sales bases overseas in North America, Europe, Asia and other regions. The ratio of overseas sales to total consolidated sales for the year ended March 31, 2017 was 52.9%. As a result, there is a possibility fluctuations and changes in economic trends and the political and social environment, as well as unexpected changes to laws and regulations in countries where the Company does business or other factors could affect the Group’s operating results.

(3) Price competition

The markets where the AMADA Group is developing its business are subject to intense price competition. Although the Group strives to maintain proper sales prices by introducing new products, focusing resources on its solution proposal-type engineering business and other efforts, there is a possibility fluctuations in sales prices as a result of increasingly aggressive or prolonged price competition could affect the Group's operating results.

(4) Fluctuation of exchange rates

The AMADA Group exports its products mainly denominated in local currencies, including US dollars and Euros. It strives to hedge exchange risk by using forward foreign exchange contracts and increasing the overseas production ratio in preparation for fluctuations in exchange rates. In case of fluctuation of an exchange rate beyond our expectations, however, the Group may incur foreign exchange gains or losses, or our product competitiveness may change, which could affect the Group’s operating results.

(5) Procurement of materials

The AMADA Group purchases parts and materials from more than one supplier. Purchase prices of these materials may fluctuate depending on changes in prices of raw materials and energy prices, including the price of crude oil. In addition, the supply and demand situation in the industry and conditions of suppliers, as well as natural disasters may become an obstacle to the stable supply of materials, which is expected to lower our productivity. These factors could affect the Group’s operating results.

(6) Quality of products

The AMADA Group has acquired International Organization for Standardization (ISO) certification, has put into place a reliable quality control framework to secure the design and manufacturing of products according to the quality management system, and strives to minimize defects. If recall costs in the event of product defects, or a damages claim due to product defects resulting in an accident that is not covered by the Group’s insurance, should occur, such could affect the Group’s operating results.

(7) Addressing environmental problems

The AMADA Group works to build a production system and offer products and services that contribute to environment preservation under its own environment policy, and strives to reduce environmental burden. Depending on environmental regulations in countries where the Group operates, however, it may be difficult to manufacture current products or use existing parts, which may result in an increase in expenses due to changes in design and R&D costs, and could affect the Group’s operating results.

(8) Intellectual property rights

The AMADA Group focuses on research and development to creating new value, and files patent applications for the technologies and knowhow developed for the protection of intellectual property rights. However, deterioration of the Group’s competitive advantage due to a patent infringement by a third party, or any claim for damages or the suspension of sales of products resulting from a third party’s claim against the Group’s patent infringement could affect the Group’s operating results.

(9) Information security

The AMADA Group possesses customer and personal information required for its business activities and has put in place a strict control system to maintain the confidentiality of such information. In case of illegal access or information leakage due to a cyberattack or computer virus, however, confidence in the Group may deteriorate or the Group may be subject to a claim for damages, which could affect its operating results.

(10) Natural disaster, conflict and terrorism

The AMADA Group has manufacturing and sales bases globally. If a natural disaster such as an earthquake or flood, or conflict and terrorism inflict enormous damage on these regions where the Group operates, and if restoration and reconstruction take significant time, it could affect the Group’s operating results.

(11) Changes in the financial market

Although certain bases of the AMADA Group have introduced a cash management system to optimize interest-bearing liabilities held, a drastic rise in interest rates will increase the Group’s interest payments. Meanwhile, a decline in interest rates or fluctuations in the stock market may lower yields of securities held, change their fair values, or may affect the expected return on the pension assets to increase retirement benefit liabilities and obligations. These factors could affect the Group’s operating results.

(12) Human resources

The AMADA Group strives to recruit and develop excellent personnel engaging in manufacturing, development and sales of the Group’s products to ensure the expansion of global business activity and maintain competitiveness. In the event that the Group fails to recruit or develop, talented employees retire, or the Group fails to retain such employees, the Group’s competitiveness may deteriorate, which could affect its operating results.

Basic Views on Eliminating Anti-Social Forces

The AMADA Group states in its code of conduct that “we do not and will not have any connection with antisocial forces or organizations, which threaten the order and safety of civil societies, and deal with unreasonable demands with a resolute attitude and without making compromises,” and ensures that all its employees are aware of this statement.