TOWA CORPORATION

Demand for final products such as smartphones, servers, and automobiles, as well as the supply-demand balance for semiconductors, can cause significant fluctuations in capital expenditure by semiconductor manufacturers, creating a risk of sharp declines in the Group's order intake and net sales. In the event of a global financial crisis or economic turmoil, a sharp decline in capital expenditure is anticipated. As countermeasures, the Group aims to stabilize earnings by expanding TSS (Total Solution Service) (remodeling, repair, parts sales, used equipment sales) and by applying its core technologies to other fields.

Severe competitive conditions both domestically and internationally are expected to lead to further declines in product prices within competing product categories. Extreme competitive conditions or a sharp decline in market prices could affect the Group's ability to secure earnings. In addition to reducing product costs and cutting expenses, the Group plans to respond by increasing added value through expanding the application scope of its proprietary compression technology and establishing new de facto standards.

Concentration of transactions with specific semiconductor manufacturers creates a risk of temporary swelling of trade receivables, as well as a risk of declining profitability due to intense competition in situations where only a limited number of customers are making capital investments. In addition, the sales ratio tends to be high in Taiwan, where major OSATs are concentrated, and in China, which is promoting domestic semiconductor production; changes in the economic and political situation or foreign economic policies in these regions may affect order intake and net sales. The Group addresses this through diversification of regions and customers, but structural concentration risk remains.

The Group operates global production sites in South Korea, China, and Malaysia, where there are risks of economic and political turmoil due to war, terrorism, and similar events, as well as risks arising from unexpected changes in laws, regulations, and tax systems. There are also risks of labor issues and social criticism arising from differences in culture and business customs. Should these risks materialize, they could have a material impact on the Group's production and supply capabilities.

The Group procures parts and materials from numerous external suppliers, and if a supply shortage occurs due to a supplier's accident, natural disaster, quality defect, or a sudden surge in product demand, the Group may be forced to limit or halt production activities. In the event of a global supply chain disruption, a sharp rise in materials prices is also anticipated. The Group has implemented measures such as purchasing from multiple suppliers, redesigning to use alternative parts, and switching to in-house production, but the risk remains that responding will be difficult in the event of a large-scale disaster or global pandemic.

In the rapidly changing semiconductor industry, it is not easy to forecast future needs and continuously develop new technologies and products. If accelerating technological innovation renders existing technologies obsolete, or if significant delays occur in new product development, this could lead to a decline in profitability and loss of market share. There are concerns about a decrease in order intake and net sales, as well as an impact on future outlook. The Group is conducting ongoing research and development activities in fields such as Molding Equipment (Transfer/Compression), Singulation Equipment, and Laser Processing Equipment to ensure timely market introduction.

The Group utilizes numerous intellectual property rights in conducting its business, and if the acquisition or maintenance of licenses does not proceed as planned, this could affect business operations. If the Group becomes a party to litigation related to intellectual property rights, substantial costs could be incurred, posing a risk to the Group's ability to secure earnings. The Group addresses this by establishing an appropriate management and protection system for intellectual property, but litigation risk cannot be completely eliminated.

The Group has a high ratio of overseas sales, and may be exposed to foreign exchange risk in the form of an effective decline in selling prices due to foreign-currency-denominated transactions or negotiations based on foreign-currency-converted prices for yen-denominated transactions. In addition, yen-denominated intra-group loans to overseas subsidiaries can temporarily become substantial at the time of factory construction or major capacity expansion, and sharp exchange rate fluctuations could result in foreign exchange losses that affect the Group's ability to secure earnings. The Group has implemented measures such as prioritizing yen-denominated transactions wherever possible and prioritizing loans between overseas subsidiaries that use the same transaction currency.

At the end of the current consolidated fiscal year, interest-bearing debt accounted for approximately 17.1% of total assets, and a significant change in interest rates could increase interest expense and affect operating results. The Group has entered into overdraft agreements and commitment line agreements totaling ¥18.5 billion with six banks, but if it breaches financial covenants, it could be required to make early repayment of borrowings, which could affect cash flow and financial condition. The Group's policy is to thoroughly emphasize cash-flow-focused management and strengthen its financial position by reducing interest-bearing debt.

The Group manages confidential information such as product technical information and personal information as electronic data, and there is a risk that such information could be leaked externally through cyberattacks, unauthorized access, or intrusion by computer viruses. If a cyberattack exceeding expectations or unexpected unauthorized use occurs, depending on the scale of damage, this could have a material impact on future outlook and earnings. The Group has implemented measures such as monitoring communication networks, detecting malware, establishing information handling regulations, educating officers and employees, and recording operation logs, but complete protection is difficult to achieve.