TOKAI CARBON CO.,LTD.

Since the adoption of the Paris Agreement, measures to reduce greenhouse gas emissions such as carbon taxes have already been introduced in some countries and regions, increasing the risk of cost increases for the Group's manufacturing operations. In January 2022, the Group established the Carbon Neutrality Promotion Committee to advance company-wide policies and strategies toward achieving carbon neutrality by 2050; however, if these efforts do not prove successful, there is a possibility of an adverse impact on business performance. Depending on the progress of tightening regulations, there is a risk that constraints on business activities and cost increases will expand further.

A large portion of the Group's sales is concentrated in the automotive, semiconductor, and steel industries, creating a risk that a downturn in these specific industries would directly impact business performance. The Group acquired two carbon and graphite product manufacturers for the aluminum market with the aim of diversifying its portfolio, but if this diversification does not function sufficiently, it may lead to a decline in net sales and profit margins. If uncertainty in the global economy (such as the prolonged Ukraine crisis, China's economic slowdown, and the expansion of protectionist trade policies) worsens further, the impact could become even more severe.

The Group uses foreign currencies in international transactions such as the import of raw materials and the export of products, and a strengthening of the yen, particularly against the U.S. dollar and the euro, tends to have an adverse impact on the Group's business performance. Since the revenues and expenses of overseas consolidated subsidiaries and equity-method affiliates are translated into yen at the average exchange rate during the period, the impact of exchange rate fluctuations is far-reaching. Regarding exchange rate fluctuation risk, the Group regularly measures and monitors the maximum potential loss using Value at Risk (VaR).

As part of its growth strategy, the Group is actively engaged in corporate acquisitions, business alliances, and strategic investments, and has been advancing management integration for past large-scale M&A transactions through the sharing of production technologies, personnel exchanges, and thorough oversight of local management. However, if the initially expected results are not achieved due to changes in the business environment or underlying assumptions, an impairment of goodwill may become necessary due to a decline in projected future cash flows, which could adversely affect business performance. In particular, the financial impact could be significant if the emergence of synergies from large-scale M&A is delayed or fails to materialize.

The Group is working to transform its products, services, and business processes through the use of digital technology, but delays in responding to the rapid advancement of technologies such as IoT and AI could lead to a decline in competitiveness. Additionally, a personal information leakage incident actually occurred in 2025, and although the Group is strengthening information security and implementing measures to prevent recurrence, such as introducing functions to prevent unauthorized logins, increasingly sophisticated cyberattacks such as ransomware could result in the theft or leakage of confidential and personal information, or the suspension of critical operations.

For the Group, the timely and stable procurement of high-quality raw materials is essential, and while the Group continues to select multiple suppliers and develop new sources, an adverse impact on production may occur if supply is disrupted or interrupted due to unforeseen events such as disasters, accidents, war, terrorism, or infectious disease outbreaks. Furthermore, if a surge in raw material prices due to supply-demand tightness or speculative trading cannot be absorbed through internal efforts such as productivity improvements or price pass-through, it will adversely affect business performance. Against the backdrop of heightened geopolitical risk, the risk of supply chain disruption has become increasingly apparent in recent years.

The Group operates in a fiercely competitive environment against numerous companies in each of its business fields, and many products are subject to downward price pressure. While the Group continues efforts to understand market needs, pursue technological capability, thoroughly manage quality, and reduce costs, if these efforts do not yield sufficient results, it may lead to a decline in market share and lower sales prices, resulting in reduced net sales and profit margins. In particular, if the Group fails to promptly develop technology capable of countering the technological innovations of competitors, there is a risk that its competitive advantage will be undermined.

The Group is advancing the development of new products and technologies for next-generation applications, centered on the Fuji Research Laboratory; however, a decline in needs due to changes in market trends, failure to address decarbonization, or an inability to promptly develop technology capable of countering competitors' technological innovations could lead to a decline in growth potential and profitability. In existing businesses as well, the research laboratories of each business division are promoting the development of new product varieties, quality improvements, and cost reductions to meet customer needs, but if these do not proceed as planned, it could adversely affect business performance.

The Group conducts business activities both in Japan and overseas under a wide range of laws and regulations, including commercial transaction laws, antitrust laws, labor laws, environmental laws, and import/export-related laws, and the introduction of new laws and regulations or unexpected changes thereto may result in constraints on business activities and increased costs. If regulatory authorities determine that there has been a violation of laws or regulations, the Group may become subject to administrative sanctions such as fines, criminal penalties, or litigation, creating a risk of reputational decline. The Group provides legal and compliance education across the entire organization, but the broad range of jurisdictions covered due to its international business operations adds complexity to this risk.

Securing, developing, and retaining capable and diverse personnel with specialized knowledge and skills in each department, including research and development, technology, manufacturing, and sales, has become a critical issue for maintaining competitiveness; however, competition for talent has intensified due to recent labor mobility and a declining working population resulting from the falling birthrate and aging population. The Group is working to actively hire diverse personnel, ensure flexibility in work arrangements, revise its personnel systems, and introduce training programs, but if these efforts do not proceed as planned, or if the Group is unable to prevent the outflow of personnel to other companies, business operations may be constrained, potentially having an adverse impact on business performance.