MERF Inc.

The Group secures non-ferrous metal raw materials from multiple domestic and overseas suppliers; however, if market conditions change significantly and cause a decline in the volume generated or in circulation, tightening the supply-demand balance, this may result in difficulty procuring materials at appropriate prices, substantial increases in purchase prices, or disruptions to production activities. Should such circumstances arise, they could materially affect the Group's operating results and financial position.

The Group's major customers are in the shipbuilding, housing sales, and equipment-related industries, and its performance is heavily influenced by trends in non-ferrous metal demand in these sectors. If demand for non-ferrous metals declines for any reason, this could adversely affect the Group's business, performance, and financial position.

In FY2025 (ended August 2025), the ratio of net sales to Nakashima Propeller Co., Ltd. reached 10.8%, indicating a high degree of dependence on a single customer. Although the Group maintains a long-term business relationship, should the transaction be terminated or contract terms significantly changed, this could adversely affect its performance and financial position.

Prices of the products handled fluctuate daily based on London Metal Exchange (LME) benchmark prices, giving rise to risks of margin fluctuation and changes in the valuation of raw material inventories. In recent years, the influx of speculative capital into commodity markets has significantly increased price volatility. Although the Group hedges using LME futures and other instruments, complete avoidance of this risk cannot be guaranteed, and it may have a significant impact on performance.

The Group conducts a high proportion of international transactions mainly denominated in US dollars, making it strongly susceptible to exchange rate fluctuations. Although the Group hedges risk through forward exchange contracts and similar measures, complete avoidance cannot be guaranteed, and performance may be significantly affected regardless of whether the yen appreciates or depreciates.

As of the end of FY2025 (ended August 2025), interest-bearing debt stood at ¥13,176 million, representing a high 51.3% of total assets. Although the Group is working to improve its financial condition, future interest rate trends could increase interest payment burdens and affect its performance and financial position.

If certain requirements under the Waste Management and Public Cleansing Act are violated in the storage or outsourced disposal of industrial waste, administrative dispositions could be imposed, adversely affecting the Group's reputation, performance, and financial position. Amendments to or tightening of environmental laws such as the Air Pollution Control Act and the Water Pollution Control Act may also require new management or disposal cost burdens. Furthermore, if environmental contamination occurs due to unforeseen incidents involving poisonous or deleterious substances used in the manufacturing process, or due to natural disasters or fires, this could have a significant impact, including reputational damage.

The Group conducts a high proportion of multinational transactions, and changes in the economic conditions of counterparties' countries, trade and commercial regulations, tax systems, unexpected changes in laws and regulations, and differences in their interpretation may adversely affect the Group's performance and financial position. Terrorism, war, earthquakes, or other events occurring in regions with many non-ferrous metal mines could also significantly affect the supply and price of non-ferrous metals, impacting the Group's operating results.

The Group operates numerous production facilities and strives to prevent accidents through both operational/maintenance management and equipment safety measures; however, if a serious industrial accident or equipment accident occurs, the Group's performance and financial position may be affected. Large-scale natural disasters in the Hokuriku region or accidents at manufacturing facilities carry risks of equipment damage, production halts, and compensation costs.

The Group's business operations rely heavily on computer systems and communication networks, and the importance of preventing system failures has increased further with the expansion of remote work. If systems or communication networks become unavailable due to human error, cyberattacks, natural disasters, or issues at external vendors, this could have a significant impact, including business disruption and reduced reliability. Although the Group has implemented measures such as establishing response frameworks and strengthening security in the event of a failure, complete prevention cannot be guaranteed.