Nomura Micro Science Co.,Ltd

The primary market for the water treatment systems business is the semiconductor market, and demand fluctuations due to trends in major customers' capital investment are unavoidable. If customers postpone or freeze their capital investment plans due to unforeseen market changes, this could have a material impact on business performance. As countermeasures, the Group is working to strengthen the collection of information on customer investment trends, accelerate growth in pharmaceutical-related fields, and secure stable revenue by promoting orders for Maintenance & Consumables.

With the ratio of overseas sales reaching approximately 70%, geopolitical risks are increasing, including political and economic turmoil, changes in laws and regulations, US-China trade friction, the Russia-Ukraine situation, and the situations in Taiwan and the Middle East. Should these situations occur, they could affect business operations and performance. The Group is promoting the establishment of an operating structure less susceptible to the effects of international conditions and regulations through information gathering in cooperation with overseas offices and regular consultation with local lawyers and accountants.

Since procurement of equipment and other materials depends on external sources, and the installation of systems is outsourced to partner companies, natural disasters, infectious diseases, geopolitical risks, and other factors could make it difficult to supply materials in a timely manner. A sharp rise in raw material and energy prices or increased construction costs could also affect business performance. The Group is strengthening stable supply through multiple purchasing, diversification of procurement routes, planned purchasing, and securing inventory, while also striving to pass on price increases through sales price negotiations with customers.

As customer requirements become more sophisticated, delivery times shorten, and equipment becomes more complex, the level of difficulty in design and construction is increasing. If defects or deficiencies occur in products or services, this could result in costs for handling the defects, liability for damages, and a decline in reliability. The Group has established a quality management system based on ISO9001, and implements design reviews, supplier quality audits, various inspections, and final performance tests at each process stage. The Group continuously improves company-wide quality control systems and cross-departmental knowledge-sharing mechanisms.

If the Group is unable to plan and recruit and develop excellent human resources, or if employee turnover occurs, this could lead to a long-term decline in development capability, production capacity, and competitiveness, thereby affecting business performance. The Group is working to strengthen management through the establishment of an internal training system, and to continuously improve the working environment, including prevention of long working hours and harassment. The Group is promoting diversity through the recruitment and development of excellent human resources regardless of nationality or gender.

Since the financial statements of overseas subsidiaries denominated in local currencies are translated into yen and reflected in the consolidated financial statements, fluctuations in exchange rates could affect business performance. Domestic entities also engage in foreign-currency-denominated transactions at customers' request, and sharp exchange rate fluctuations could affect business performance. The Group monitors exchange rate trends and strives to reduce exchange rate fluctuation risk by entering into forward exchange contracts as necessary.

If the Group is unable to keep pace with competitors' introduction of new technologies, technological innovation, or changes in customer needs, this could lead to technological obsolescence and a decline in product competitiveness, thereby affecting business performance. The Group is promoting R&D under the medium-term management plan "SMART UP3 Acceleration," focusing on advancing and improving the energy efficiency of Ultrapure Water Production Systems. The Group is also actively engaged in joint research with private companies and universities, and is working to bring products other than Ultrapure Water Production Systems to market.

If the Group's intellectual property rights are infringed by third parties, or if the Group unintentionally infringes on the intellectual property rights of third parties, this could result in response costs and liability for damages, affecting business performance. The Group is enhancing its intellectual property investigation system through database and literature research both in Japan and overseas, striving to prevent patent infringement and eliminate lawsuits and claims.

If unforeseen legal revisions in the countries and regions where the Group operates result in unintentional violations of laws and regulations, this could lead to a decline in social credibility, the imposition of fines, and liability for damages, thereby affecting business performance. The Group has established a Compliance Committee chaired by the Representative Director, President and Executive Officer, and continuously conducts regular monitoring and internal education. The Group has introduced a group-wide internal reporting system, and strives for early correction of violations of laws and regulations.

Revenue recognition for construction contracts is based on estimates of total construction revenue, total construction costs, and progress, and involves uncertainty due to sudden changes in raw material prices, specification changes, and delays in construction by subcontractors. If estimates diverge from actual results due to future changes in circumstances, this could affect business performance. The Group strives to reduce this risk by appropriately confirming the progress of construction at monthly cost meetings.