Shirai Electronics Industrial Co.,Ltd.

Printed wiring boards are components incorporated into final products such as car electronics, home appliances, and amusement equipment, and sales trends are strongly linked to customers' production volumes. Demand fluctuations due to economic downturns or changes in customer strategy, as well as price reduction requests and price competition accompanying declines in market prices of final products, may adversely affect business performance. Given the nature of components that do not function on their own, there is a structurally high dependence on customers, making the business directly susceptible to demand fluctuations.

The Group operates manufacturing and sales bases mainly in East Asia and outsources the manufacturing of certain products to subcontractors in China and elsewhere. This entails a complex set of risks, including unexpected changes in laws and regulations, adverse political and economic factors, rapid increases in labor costs, exchange rate fluctuations, and social unrest caused by terrorism or war. The materialization of these risks may directly affect business performance and financial condition.

Copper-clad laminate, the main raw material, is composed of copper foil, glass cloth, and resin. Copper foil prices are affected by global copper market trends, while resin prices are affected by crude oil price trends. A surge in these commodity prices could push up raw material costs and adversely affect business performance and financial condition. If it is difficult to pass on price increases to customers, there is a risk that profitability could decline significantly.

The Group has entered into a syndicated commitment-based term loan agreement with four partner banks, which is subject to financial covenants. If business performance deteriorates due to shrinking demand from a worsening market environment or rising raw material prices, there is a risk of breaching these financial covenants. In the event of a breach, the Group may be required to repay interest-bearing debt in a lump sum, which could have a material adverse effect on its financial condition.

If funding costs increase due to rising interest rates or a decline in the Group's creditworthiness, profitability may deteriorate. In addition, if the Group is required to repay interest-bearing debt in a lump sum, this could adversely affect its financial condition. Changes in the funding environment necessary for business expansion may affect the stability of management.

In the field of printed wiring boards, technological innovation may lead to the development of advanced products that surpass existing products, and if the Group is unable to respond to such developments, its competitiveness may decline. Failure to maintain technological superiority could lead to customer attrition and loss of market share, potentially affecting business performance and financial condition. The business environment requires continuous investment in research and development and the maintenance of technological responsiveness.

The Group's printed wiring boards are incorporated into the final products of various set manufacturers, and in the event of a large-scale recall or product liability claim, the Group could be forced to bear substantial costs. Given the characteristic of being a component incorporated into final products, there is a risk that defects could spread to the entirety of customers' products. A decline in social credibility and compensation costs could have a material impact on business performance.

Although the Group has established an Information Security Committee to promote group-wide monitoring, supervision, and continuous improvement activities, if information is leaked due to theft, loss, unauthorized use, cyberattacks, or virus infection, this could lead to a decline in social credibility and the payment of damages. With the advancement of digitalization, the threat of cyberattacks is increasing, requiring continuous strengthening of countermeasures.

If production facilities suffer catastrophic damage due to a major earthquake or other natural disaster, this could result in a decline in sales and substantial costs for facility restoration and replacement. There is also a risk that damage at subcontractors or difficulty in procuring raw materials and auxiliary materials could lead to a prolonged suspension of production activities. Although natural disaster countermeasures have been implemented, there are limits to responding to situations that exceed expectations.

If the business environment deteriorates due to the materialization of various risks and future cash flows cannot be obtained as planned, the Group may recognize impairment losses on held assets. The recognition of impairment losses would directly and adversely affect business performance and financial condition. If deterioration of the market environment and demand fluctuations act in combination, the impact could be particularly significant.