The following is a list of items that we believe may become risk factors in the development of our business. Even if we do not necessarily consider them to be business risks, we have included them in the following section from the viewpoint of information disclosure to investors if they are considered important for investment decisions or for understanding our business activities.
Matters stated that relate to the future are based on the Company’s management judgments and forecasts based on information available as of the date of submission of the report.
High Dependence on the Electronics Industry
Our products are mainly used for semiconductor mounting boards, printed circuit boards, connectors, lead frames, and other electronic components, and our sales destinations are mainly in the electronic equipment industry. The Company’s business performance is greatly affected by trends in the electronics industry, particularly the smartphone and PC markets.
Effects of Product and Raw Material Market Conditions, etc.
The raw materials used in the Company’s main products can be roughly divided into noble metals and chemicals, with noble metals accounting for the majority in terms of value.
Prices of chemicals are relatively stable, but prices of noble metals (gold, silver, and palladium) are greatly influenced by international commodity markets. The Company’s business activities may be affected in the event of price hikes or supply restrictions of raw materials due to the emergence of geopolitical risks such as the invasion of Ukraine and the Taiwan contingency, as well as accidents at mines.
Since contracts with customers for noble metals are basically determined based on the quotation of the day for both purchase and sales, and orders for noble metals are placed at the same time orders are received, the amount of profit is largely unaffected by fluctuations in noble metal prices. However, since there is a risk of price fluctuations due to keeping a rotating inventory, we strive to minimize the impact by shortening delivery times and minimizing the amount of inventory.
Impact of Foreign Exchange Fluctuations
The Company’s export ratio for the fiscal year ended March 31,2024 is 55.6%, and the fiscal year ending March 31, 2025 is 48,8%. Our overseas transactions are basically settled in yen, but recently the number of dollar-denominated transactions has been on the increase. Although the Company hedges risks by means of forward exchange contracts, etc., there is no guarantee that such risks can be completely avoided, and business performance may be affected by exchange rate fluctuations.
Research and Development
In the electronics industry, technological innovation is rapid, and research and development are extremely important to provide products that better meet customer needs and maintain and expand market share.
We will continue to engage in R&D activities for plating chemicals for cutting-edge devices, plating chemicals that contribute to further performance improvement and cost reduction for users, and environmentally friendly plating chemicals, etc. However, if such R&D activities are not carried out smoothly as planned, our business performance may be affected.
Intellectual Property Rights
The composition of noble metal plating chemicals, our main product, is complex, and it is generally not easy to enter the market as an equivalent product due to the difficulty of analyzing the composition of the components by analysis. Therefore, we have not been active in obtaining patents for noble metal plating chemicals.
However, in response to recent advances in organic analysis technology, we intend to emphasize technological preservation for future R&D of new technologies by filing parameter patent applications, which are defined by physicochemical constants, rather than patent applications based on composition information. However, not all patents we apply for will be registered, and in the event of superior R&D that exceeds our R&D, our business strategy may be affected.
If, despite careful preliminary research, a product we develop and market is determined to infringe on the intellectual property rights of a third party, or if a new third-party patent related to our products is approved, our business performance may be affected.
Leakage and Leakage of Technical Know-How
The Company’s technical information includes the development process of plating chemicals, composition and ingredients of plating chemicals, and technical data between the Company and its customers. Such technical information is stored in a designated vault and managed on a daily basis, and is not allowed to be taken outside the Company or copied. In particular, with regard to plating compositions and components, we are striving to prevent leakage by converting them to our company’s unique designations and describing them in such a manner.
However, recently there has been an increase in the use of e-mail, flash memory, projectors, etc. for communication with outside parties, and in the unlikely event that such information is leaked outside the Company, it is believed that it would be possible to manufacture similar products by matching the results of plating chemical composition analysis with the leaked information, which could affect the Company’s business performance. This could have an impact on the Company’s business performance. In addition, with the spread of work styles such as web conferencing and work at home, there are more and more opportunities to use IT tools, and despite strict internal management rules, there is a possibility that some trade secrets may be leaked due to security incidents, etc., and our business may be affected. Although we ensure that our employees understand our policies, confidentiality obligations, and confidentiality when they are hired, we cannot deny the possibility that some technical information, etc. could be leaked and affect our business in the event that someone leaves the Company, despite confidentiality agreements that include a reasonable period of time after retirement.
Securing and Training Human Resources
In addition to each employee performing his or her own role, each person at the Company always promotes operations with a holistic view. At present, we are in a position to secure excellent human resources through measures such as raising our name recognition, strengthening recruitment activities, and expanding education and training programs. However, if we are unable to secure and train sufficient human resources to meet our needs in the future when our business expands due to the further strengthening of our R&D system, further overseas expansion, and entry into new business fields, it may have an impact on our future business development. In the event that we are unable to secure and train sufficient human resources, this may have an impact on the future promotion of our business.
Legal Regulations
The Company uses chemicals subject to the Poisonous and Deleterious Substances Control Law as raw materials for its plating chemicals, and is therefore subject to regulations under the law regarding the sale, manufacture, import, etc. of such chemicals.
The Company has obtained registration as a distributor, manufacturer, and importer of deleterious and poisonous substances, and has established a thorough internal management system to ensure compliance with laws and regulations. However, in the unlikely event of a violation of laws and regulations, our business performance could be affected.
Management of Waste Materials, etc.
Waste liquids and emissions into the atmosphere generated in the course of our manufacturing or experimental processes must be disposed of appropriately in consideration of the environment. Depending on the concentration of the wastewater, we treat it using wastewater treatment equipment or outsource treatment to a third party. For emissions control, we use exhaust gas treatment equipment through local exhaust ventilation in laboratories and manufacturing processes. As a result of these efforts, we have not received any guidance from the government or requests from local residents, etc. However, if any problem arises in the future in the management of our emissions, it may affect our business performance.
Measures in the Event of a Disaster
Until now, the Company has concentrated all departments at a single location to enhance the speed of decision-making, improve production efficiency, and increase customer satisfaction. However, following the Great East Japan Earthquake, the importance of Business Continuity Planning (BCP) has gained greater attention, and the Company has increasingly been requested by its major customers to establish a BCP framework.
In response, the Company maintains inventories of its main products and operates external warehouses for major customers. In addition, preparations have been completed at the Company’s office building to secure manufacturing space and install equipment for key products, enabling it to serve as an emergency production site.
Nevertheless, in the event of a large-scale earthquake or other disaster occurring in the Tokyo metropolitan area, the Company’s production and shipment of products may be temporarily disrupted, which could have an impact on its business performance.