MICRON MACHINERY CO., LTD.

Because the company operates a build-to-order production system, adjustment test runs and specification change responses prior to acceptance inspection at customer plants and the company's own plants may require an extended period, and if the scheduled acceptance inspection timing fluctuates, this may affect business results. The risk of a prolonged period from order receipt to acceptance inspection is particularly pronounced for projects requiring high precision and high efficiency. As countermeasures, the company compiles requirements into specifications before receiving orders to set achievable delivery dates, and reviews the production plan as needed when progress delays are anticipated.

Because the company operates a build-to-order production system, if an unexpected cancellation occurs while manufacturing is proceeding based on customer specifications, it may be difficult to cancel the product or manufacturing process, resulting in a partial burden of manufacturing costs and affecting business results and financial condition. There is a structural risk in which losses upon cancellation become larger for longer-term, higher-value projects. When a cancellation occurs, the company immediately attempts to divert the product to other uses and seeks to reduce the burden by claiming incurred costs based on the cancellation clauses in the sales contract.

The proportion of sales to the automotive industry is high by industry breakdown, and since the company has not concluded long-term supply contracts with customers regarding quantity, price, and other terms, changes in capital expenditure and order trends in that industry directly affect business results. The absence of long-term contracts means there is little buffer against demand fluctuations, creating a risk of a sharp decline in sales when the automotive industry's business conditions deteriorate. As a countermeasure, the company is pursuing new development in emerging markets, the medical device industry, the aerospace industry, and others to diversify its customer base.

The company has a high degree of sales dependence on the Centerless Grinder, its core product since founding, and if demand for this product were to decline sharply, it could have a significant impact on business results. Dependence on a single product category increases the risk of a sharp decline in earnings in the event of technological substitution or market contraction. As countermeasures, the company is promoting diversification of its product portfolio through strengthening sales of the Internal Grinder, external sales of high-frequency spindles, incorporating upstream and downstream grinding processes, and developing and selling medical devices.

The company depends on specific suppliers for some raw materials and parts such as castings and spindles, and if the order status or management strategy of such suppliers changes, resulting in a decrease or cessation of supply, this may affect business results. For certain parts, alternative procurement sources are limited, creating a vulnerability in the supply chain. As countermeasures, the company is working to strengthen the resilience of its supply chain by developing new suppliers, expanding the range of items handled by existing suppliers, and promoting in-house production at the Miharashi Plant.

If the purchase prices of raw materials and other items fluctuate due to changes in raw material market conditions or processing cost trends, this may affect business results through an increase in manufacturing costs. Because the company's structure is build-to-order with few long-term price contracts with customers, it may be difficult to pass on increases in raw material costs to sales prices. As countermeasures, the company maintains an appropriate inventory level of parts and raw materials while strengthening the supply chain and working to maintain optimal pricing through strengthening relationships with suppliers and developing new suppliers.

In FY2025 (ended August 2025), foreign-currency-denominated transactions accounted for 46.9% of net sales, and expense payments also include foreign-currency-denominated transactions, so fluctuations in exchange rates may directly affect business results and financial condition. Because the company continues to hold foreign-currency-denominated assets, there is a risk that the yen-converted amount of sales and assets will decrease in a yen appreciation phase. As a countermeasure, the company's policy is to comprehensively consider exchange rate and interest rate trends and, as necessary, implement risk hedging through forward exchange contracts and other means.

Some products and parts capable of high-precision, high-efficiency grinding are subject to regulation under the Foreign Exchange and Foreign Trade Act, and shipments to certain regions require permission or approval from the Minister of Economy, Trade and Industry; if regulations are tightened due to amendments to this act or the enactment of new laws, this may affect business results. In FY2025 (ended August 2025), 74.2% of products and parts were delivered overseas, so the impact of stricter export controls concerns the very foundation of the business. As countermeasures, the company has established an Export Trade Control Office, gathers information from the Ministry of Economy, Trade and Industry and the Center for Information on Security Trade Control, and ensures thorough compliance with laws and regulations across the group through education and audits of overseas subsidiaries.

In FY2025 (ended August 2025), 74.2% of products and parts were delivered overseas, so the enactment or amendment of laws and regulations in destination countries, unfavorable political or economic factors, and social unrest due to terrorism or war may affect business results. Because of the high dependence on overseas sales, the materialization of geopolitical risk could directly lead to a significant decline in sales. As countermeasures, the company continuously gathers information from the Ministry of Foreign Affairs' Overseas Safety website and from overseas subsidiaries, and in the event of an emergency, establishes a countermeasure headquarters headed by the president based on its risk management regulations to avoid and minimize risk.

The involvement of certain skilled technicians in the manufacturing process is indispensable to ensuring high-precision, high-efficiency grinding performance, and if multiple skilled technicians were to retire, the company may be unable to secure personnel and train successors quickly enough, potentially leading to delivery delays and deteriorating business results. Because skills are highly individual-dependent, there is a structural challenge in that replacement is difficult in a short period. As countermeasures, the company established MICRON Technical Service Co., Ltd. as a place of employment for skilled technicians aged 65 and over to secure opportunities for skill transfer, while also promoting improved retention rates through education and training for younger employees, enhanced recruitment, and improved employee benefits.