NIPPON COKE & ENGINEERING COMPANY, LIMITED

Coal and coke purchase and sale prices and volumes may fluctuate significantly due to changes in domestic and overseas economic conditions and supply-demand conditions. Given the high degree of dependence on the core Coke Business, deterioration in market conditions directly affects the operating results and financial condition of the Group as a whole. As a countermeasure, the Group's basic management policy is to strengthen the competitiveness of the Coke Business and establish a business foundation that is not affected by market conditions.

The Group's core business is the Coke Business, and the Group is highly dependent on this business. If fluctuations in the performance of this business continue due to market conditions and other factors, this may affect the operating results and financial condition of the Group as a whole. The Group's basic management policy addresses this by strengthening and stabilizing the business foundation of non-coke businesses to establish a diversified profit structure.

The Group imports coal (steam coal and coking coal), petroleum coke, biomass fuel and other materials from overseas, and natural disasters, changes in the political and economic environment, changes in tax systems, regulations and laws, human rights issues and other factors in the countries of origin may cause purchase prices to surge or supply to be delayed or halted. Such events may affect the Group's operating results and financial condition. No specific countermeasures are described in the Annual Securities Report.

The Group conducts foreign currency-denominated transactions, mainly in US dollars, for the purchase of coal and other materials and the sale of coal and coke, and is therefore affected by fluctuations in exchange rates. Although this is offset to a certain extent by foreign currency-denominated coke sales and coal import transactions, any unoffset portion may affect the Group's operating results and financial condition.

The Group has interest-bearing debt, and significant fluctuations in interest rates may affect the Group's operating results and financial condition through increased interest burden on borrowings. For the majority of long-term borrowings, the Group avoids the risk of rising interest rates as much as possible through hedging transactions such as interest rate swaps.

Some loan agreements contain financial covenants, and if deterioration in operating results or financial condition causes the Group to fail to meet these covenants, consultation with lenders and others would be required, and this may affect stable fundraising due to acceleration of debt repayment obligations and other factors. Note that the content of the financial covenants was changed effective April 24, 2026 and April 30, 2026.

The Group evaluates the asset value of its tangible and intangible fixed assets based on market value and profitability, but if market value declines or profitability deteriorates, impairment may become unavoidable, which may affect the Group's operating results and financial condition.

In December 2025, a fire accident occurred on the coal-conveying belt conveyor at the Kitakyushu Plant, resulting in forced production cuts. If large-scale natural disasters or serious industrial accidents, equipment accidents, environmental accidents, quality problems, or other issues occur, business operations may be suspended or restricted, and compensation payments and other factors may affect performance. Additionally, regarding labor issues related to former Korean Peninsula-origin workers associated with coal mines previously operated by the Group, the Group's policy is to respond in coordination with administrative authorities and other relevant parties.

The Group is subject to various legal regulations both in Japan and overseas, including tax laws, environmental laws, labor laws, and trade and foreign exchange laws. Violations of laws and regulations may result in administrative penalties such as fines or business suspension, as well as claims for damages. In addition, changes to or tightening of legal regulations may increase compliance costs, which may affect the Group's operating results and financial condition.

The Group determines the recoverability of deferred tax assets based on forecasts of future taxable income. If forecasts of future taxable income change and the Group determines that recovery is not possible, a reduction in deferred tax assets may affect the Group's operating results and financial condition.