SEC CARBON,LIMITED

The mainstay product, Cathode Blocks for Aluminum Smelting, is affected by demand for new/expanded facilities and renewals in the aluminum smelting industry, while Artificial Graphite Electrodes are heavily dependent on business fluctuations in the electric furnace steel industry, resulting in highly volatile demand. The Group seeks to stabilize production volume through flexible switching of manufactured items on the same production line, but if unexpected demand fluctuations occur, this could affect business performance.

Cathode Blocks for Aluminum Smelting are 100% export products, and the export ratio including Artificial Graphite Electrodes and some Special Carbon Products exceeds 50% of total sales, making the Group strongly affected by exchange rate fluctuations. The Group implements risk hedging through expanding yen-denominated exports, increasing exports in currencies other than the US dollar, and forward exchange contracts, but risk cannot be completely hedged.

Most raw materials used are susceptible to rising prices of materials such as petroleum and coal, as well as supply-demand balance effects. The Group strives to mitigate the impact through strengthening cost competitiveness, passing costs on to product prices, procuring inexpensive raw materials, and developing new suppliers, but if unexpected fluctuations occur in market conditions, this could affect business performance.

The share of the top customer by contract (a trading company) reaches approximately 70%, resulting in extremely high dependence on this customer. However, since most transactions are export transactions and the ultimate end users are dispersed mainly overseas, credit risk is diversified to a certain extent. In domestic transactions, no single customer holds a sales share exceeding 10%, and the risk of dependence on specific major domestic customers is considered limited.

At present, the proportion of exports to the US in total sales is not large, and the direct impact is considered minor, but the indirect impact is unknown. Depending on future US policy trends, this could affect business performance, and the outlook remains uncertain.

If stricter environmental regulations are implemented both domestically and internationally, this could lead to expanded restrictions on business activities and increased costs, potentially affecting business performance. The Group conducts business based on legal compliance, but depending on the scope and degree of stricter regulations, there is a risk that response costs could increase.

For the purposes of organizational simplification, production efficiency, and effective utilization of human resources, the Group has consolidated its main production facilities at the Kyoto Plant (Fukuchiyama area). If a major earthquake, large-scale wind or flood disaster, or other disaster occurs in this area, production activities could be significantly affected, representing a material risk to business continuity. The Group has implemented measures to ensure personnel safety and business continuity in the event of a large-scale accident or disaster.

If infectious diseases such as novel coronavirus, influenza, or norovirus spread among employees, temporary operational suspensions and other effects could impact business activities and performance. The Group is said to have implemented various measures to ensure business continuity in the event of an outbreak.

At present, the Group has no litigation that would materially affect its financial position or business results, but if such litigation arises in the future, it could affect business performance.

The Group's product lineup has a long manufacturing period and is unlikely to experience short-term market changes, but if the Group fails to respond to changes in customers' environments or technological innovation, this could affect business performance. Based on long-standing relationships of trust with customers, the Group continuously works on product improvement and development in line with customer requests.