NIKKATO CORPORATION

Ceramic products account for 72.4% of net sales, and the company specializes entirely (100%) in ceramic products, creating a risk that business performance could be significantly affected by the emergence of alternative new materials. Because diversification is limited, there is little room to shift the business if material substitution progresses.

In FY2026 (ending March 2026), sales to the electronic components industry accounted for 55.4% of the Ceramics Business and 21.0% of the Engineering Business, and this ratio has been trending upward alongside the expansion of the IT sector. The risk that a downturn in the electronic components industry would directly impact business performance is increasing.

The Ceramics Business depends on Tosoh Corporation for 74.2% of its raw material purchase value, procuring 96.9% of its zirconia purchases from that company. If procurement from Tosoh Corporation were to become difficult for any reason, securing alternative supply sources would be difficult, potentially causing serious disruption to production activities.

Zirconia microbeads are used for grinding applications in the multilayer ceramic capacitor (MLCC) manufacturing process, but if an alternative grinding method is devised and implemented, demand for zirconia microbeads would disappear, affecting business performance. This is a technological change risk that directly affects demand for the company's core products.

Zirconia currently receives the highest evaluation as a wear-resistant ceramic for grinding and dispersion applications, but if a higher-quality, lower-cost alternative raw material emerges and the company is unable to obtain it, the company could lose competitiveness, potentially affecting business performance. Maintaining material competitiveness is a precondition for business continuity.

While zirconia purchase prices are currently generally stable, if purchase prices rise significantly due to expanding product demand or a decrease in raw material supply, this could adversely affect business performance through increased manufacturing costs. The structure is susceptible to rising energy and raw material costs linked to geopolitical risks.

The company concentrates two plants in Osaka Prefecture, creating a risk that large-scale earthquakes, tsunamis, typhoons, floods, or other natural disasters could disrupt manufacturing or cut off transportation routes. Although a BCP (Business Continuity Plan) has been established, if a disaster exceeding expectations occurs, order-taking and supply could stagnate for an extended period, potentially significantly affecting business performance.

The company holds confidential information and personal information of customers and business partners, and has taken measures such as appointing a chief information security officer and implementing external intrusion prevention measures and data encryption. However, if information leakage or system downtime occurs due to unauthorized access exceeding the anticipated level of defense, or due to internal negligence or theft, this could affect business performance through loss of credibility, damages, or business suspension.

Highly specialized human resources are essential for responding to technological sophistication and innovation, and the company is advancing year-round recruitment of new graduates and experienced personnel as well as the development of evaluation and compensation systems. However, competition for recruitment is intensifying due to the declining working population associated with the falling birthrate and aging population, and if securing, retaining, and developing the necessary personnel does not proceed as planned, this could significantly affect future growth.

Geopolitical issues such as the situation in Ukraine, the situation in the Middle East, tensions surrounding Taiwan, and the US-China conflict could cause energy-related costs and raw material costs to rise, potentially affecting business performance and financial condition. There are concerns about a direct impact on raw material procurement costs and manufacturing costs.