SANNO Co.,Ltd.

The Group's main products are pressed and surface-treated components supplied to connector manufacturers for the IT industry, and are thus strongly affected by industry trends. In recent years, connector manufacturers have been increasingly bringing press processing and surface treatment processing in-house through their domestic and overseas group companies' internal manufacturing divisions, for purposes such as cost reduction and maintaining utilization rates. If this trend toward in-house production progresses beyond the general trend of the IT industry, it could have a material impact on the Group's financial position and business results. No explicit countermeasures by the Group are stated, and this is recognized as a structural risk of declining orders.

The Group has an overseas subsidiary in the Philippines and settles transactions primarily in US dollars, so as the scale of overseas transactions expands, fluctuations in foreign exchange rates could significantly affect the Group's financial position and business results. In addition, while domestic transactions are mainly denominated in yen, if domestic customers' production bases increasingly relocate overseas, yen-denominated transactions could decrease, expanding the indirect impact of exchange rate fluctuations. As the consolidated proportion of sales and profit from overseas subsidiaries increases, the significance of this risk correspondingly grows.

Potassium gold cyanide (gold content 68.3%), the main raw material for surface treatment processing, and copper flat sheet, the main raw material for press processing, are subject to price fluctuations driven by international market conditions. The Group strives to pass on increases in raw material prices to selling prices, but if fluctuations in gold and copper market prices exceed expectations, it may become difficult to sufficiently reflect these in unit prices, potentially affecting business results. No hedging measures against fluctuations in international commodity market conditions are stated, and the response relies on price pass-through negotiations.

The electronics industry to which the Group belongs is evolving on a daily basis, and rapid response to changes in product trends and environmental compliance standards is a critical management consideration. Since the Group's production equipment is fundamentally designed and manufactured in-house, if product shapes, materials, or raw materials used undergo rapid changes, research and development as well as equipment design and manufacturing may take considerable time, potentially disrupting production. This poses a risk of material impact on the Group's business operations.

The Group uses chemicals subject to the Poisonous and Deleterious Substances Control Act in its surface treatment processes, and discharged wastewater and other effluents are subject to regulations under the Water Pollution Prevention Act, Air Pollution Control Act, Soil Contamination Countermeasures Act, and other laws. If legal amendments strengthen regulations, resulting in bans or restrictions on the use of subject chemicals or changes to waste discharge standards, extensive modification of treatment facilities may be required, potentially involving significant cost and time. The Group manages wastewater by setting internal standards stricter than legal regulatory values and strives to comply with laws by conducting recycling wherever possible.

The electronics industry is required to address environmental issues such as becoming "lead-free," eliminating chlorine-based solvents, and going "cyanide-free," and the Group addresses these through improvements to its surface treatment processing methods. If alternative materials or new techniques are developed in the future, or if legal tightening of water quality and air emission standards progresses, transitioning equipment could require significant cost and time. In particular, the growing demand for cyanide-free surface treatment domestically is recognized as a risk that could force a fundamental review of existing equipment and processes.

In part of the site of the Company's head office area, measurement results exceeding standard values have been intermittently confirmed for specified hazardous substances that the Company has not used in its business operations, and countermeasures are being implemented at the source. While the Company currently has no need to implement countermeasures itself, if the same factory site is sold or facility use is discontinued in the future, investigations may be mandated under the Soil Contamination Countermeasures Act and other laws. If such investigations confirm contaminated soil exceeding standard values, there is a risk that treatment such as soil replacement or cleaning could require cost and time.

The Group engages in substantial technology development related to processing, but adopts a policy of not actively acquiring patents or utility model rights in order to prevent the leakage of know-how. As a result, if another company obtains a patent related to technology developed by the Group, this could affect the Group's business results. In addition, while the Group takes measures such as employee education, review of related literature, and consultation with patent attorneys to prevent infringement of other companies' intellectual property rights, if an infringement occurs, this poses a risk of affecting the Group's financial position, business results, and social credibility.

The Group has a production site in the Philippines, and expects the share of overseas production within the Group to increase going forward as Japanese manufacturers continue to promote relocation of production overseas. If political instability occurs in Asian countries, or if changes are made to laws, policies, regulations, or tax systems, this could have a material impact on the Group's financial position and business results. As dependence on overseas operations increases, the significance of this country risk correspondingly grows.

Fine processing technologies such as nickel barrier and spot plating are highly dependent on individual workers for process settings, and it has taken time to establish a standardization system. Securing skilled workers who underpin quality and transferring their skills is essential; if skilled workers were to leave the company, production could be disrupted, potentially having a significant impact on the Group's business operations. The Group is promoting the development of a standardization system, but the annual securities report explicitly states that this effort remains a work in progress.