SHINAGAWA REFRA CO.,LTD.

A large portion of net sales is dependent on the steel industry, and sales of refractories and furnace construction work are significantly affected by the operating rates and capital expenditure trends of that industry. There is also a risk that changes in refractory usage intensity due to steelmaking process changes aimed at carbon neutrality, or a decrease in domestic demand due to increased imports from China, could occur. As countermeasures, the company is focusing on expanding sales to non-ferrous and industrial furnace markets outside the steel industry, as well as expanding exports and overseas business development.

Refractory usage intensity per ton of steel has been declining year by year, and unless the operating rates and capital expenditure of the steel industry increase, domestic demand may continue to decline. If steelmaking processes change due to accelerated efforts toward carbon neutrality, usage intensity is expected to fluctuate further. To address the shrinking domestic market, the company is promoting overseas expansion and sales expansion into the non-ferrous field.

Much of the raw materials used are imported from overseas, including China, and if procurement becomes difficult for any reason, it could disrupt stable production and adversely affect business performance and financial condition. Geopolitical risks and supply disruptions due to export restrictions are the main concerns. The company aims to reduce this risk by diversifying supply sources and promoting raw material recycling from used refractories.

While the company actively pursues M&A and joint ventures for sustainable growth, if changes in market conditions cause a decline in the profitability or deterioration in the financial condition of the target company or business, this could adversely affect business performance and financial condition through impairment of goodwill or fixed assets. The company aims to reduce this risk by carefully conducting due diligence on target companies prior to execution and thoroughly examining future business plans. Information gathering and consultation are also conducted through each business location and external experts.

At business locations in Japan and overseas, industrial accidents, natural disasters such as earthquakes, typhoons, and torrential rains, and accidents such as fires or equipment failures could cause severe damage to employees, production sites, and production facilities, potentially disrupting stable production. If such damage occurs, it could adversely affect business performance and financial condition. The company continues to provide education and investment to prevent industrial accidents and accidents, and formulates business continuity plans (BCP) and conducts training to improve their effectiveness.

If the use of the internal network becomes difficult due to cyberattacks or similar incidents, it could disrupt stable business activities and adversely affect business performance and financial condition. As digitalization progresses, the threat of cyberattacks is increasing, requiring a response across the entire group. The company builds an environment to strengthen information security and provides information security education to employees.

The main source of fundraising is interest-bearing debt such as borrowings from financial institutions, and if market interest rates rise or the company group's creditworthiness declines, this could affect business performance and financial condition. Fluctuations in the interest rate environment carry the risk of squeezing profits through increased funding costs. The company aims to reduce this risk by utilizing hedging instruments such as interest rate swaps.