Risk Factors

Risk Factors

Business of UNION TOOL group (“UTG”) is subject to many risks. The principal risks affecting the UTG’s business are described briefly below:

1. Influence of Conditions of Manufacturing Industry

Main business of UTG is to manufacture and sell the industrial consumables. Most of its customers belong to the manufacturing industry and use our products for their processing works. UTG’s business is highly dependent on the global manufacturing industry. The sluggish manufacturing activities could have a negative impact on the UTG’s financial results.

2. Dependence on the Cutting Tool Sales, Especially PCB Drills

The consolidated sales of cutting tools, especially PCB drills account for nearly all of UTG sales and this business model will continue for some time. Therefore, the decreasing demand for PCB drills could be a negative impact on the financial results. Recently, the printed circuit boards require higher technology and quality, because of increasing of the wring density in the following order, but UTG is sure of its leading position in this area to help its customers. At the same time, UTG continues to increase the sales of Carbide end mills and thread rolling dies for other markets.

3. Dependence on Asian Business

Since the center of the global economy is shifting towards Asia, it is unavoidable to depend on Asian business which accounts for a large part of UTG sales. Now UTG has been strengthening its Asian production capacity in order to meet the active demand. The political, economic and social confusion in Asia or the delay of its Asian strengthening plans could exert a negative influence on UTG’s business and financial situation.

4. Price Rise of Raw Materials, Especially Tungsten Carbide

Main raw material of UTG’s products is one of the rare metals, tungsten carbide. Recently, the price of raw metals has risen. UTG endeavors to stably purchase these raw materials as much as possible. However, the huge and drastic rise in raw material prices could affect UTG’s financial situation.

5. Concentration of Production in Japan, Niigata Nagaoka-City

UTG manufactures approximately 70% of PCB drills and most of its in-house production equipments in Niigata prefecture, Nagaoka city. The Nagaoka factory is utilized efficiently as a principal base of new advanced technology. In the unlikely event of geographical troubles and unforeseen changes of distribution in Nagaoka city, there is a possibility that the UTG’s financial situation will be affected.

6. Foreign Currency Exchange Rate Fluctuations

UTG has few overseas subsidiaries which submit their financial reports in local currencies. They are converted into Japanese yen at the exchange rate when the consolidated financial reports are compiled. Therefore, the UTG’s financial performance may be influenced by exchange fluctuations.

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