Kobe Steel, Ltd.

The Group's major demand sectors are automobiles, shipbuilding, and construction/civil engineering, with overseas sales accounting for 34.8% of total sales. A deterioration in demand-sector trends or changes in geopolitical risk and trade regulations in overseas demand regions could lead to a decline in net sales and orders received, as well as delays in receivables collection. The Group maintains stability by operating multiple business domains while continuing technology development to sustain competitiveness.

China's excess production capacity issue remains unresolved, and intensified competition in international markets stemming from oversupply is a factor causing fluctuations in domestic and overseas steel supply-demand conditions and product prices. Although most domestic sales are conducted on a "tied" (himozuki) basis, they are ultimately affected by fluctuations in "over-the-counter" (tenuri) prices, which could lead to a decline in net sales and deterioration in earnings. Export steel prices and volumes are also affected by supply-demand conditions in each demand region.

Prices of steelmaking raw materials such as iron ore, coal, and scrap fluctuate significantly due to China's supply-demand conditions, the supply capacity of a limited number of supplying countries, geopolitical risk, and exchange rates. While the Group strives to diversify procurement sources and pass on costs to product prices, significant price fluctuations could increase costs and affect business performance. Aluminum and copper ingot prices are basically passed on to customers through a pass-through mechanism, but sharp short-term price changes could temporarily affect business performance due to inventory valuation effects, etc.

If supply chain disruptions occur due to disasters, accidents, sudden changes in tariff policy, geopolitical risk, or other factors, this could lead to a decline in net sales and increased costs. The Group has established a CSR Procurement Basic Policy and is working to build a responsible supply chain, but if legal violations or human rights/labor issues occur within the supply chain, this could also damage trust in the Group. The Group strives to secure stable procurement through diversification of procurement sources and strengthening of relationships.

The Group operates the steel and electric power businesses, which are major businesses with high CO₂ emissions, as core businesses, and emissions trading scheme benchmarks have been set for fiscal years 2026 through 2030. If new emissions regulations are introduced, the emissions trading scheme is changed, or a carbon levy is introduced, business activities centered on steel and electric power could be constrained, potentially leading to a decline in net sales and increased costs. Important matters related to CO₂ reduction are examined and addressed on a company-wide, cross-organizational basis.

In light of past instances of improper quality-related conduct, the Group has rebuilt its quality governance framework, transitioning from FY2024 to the "KOBELCO TQM Promotion Committee" to strengthen group-wide initiatives. If operational problems arise in the quality governance framework or quality defects occur in products, this could affect business performance through costs arising from litigation or claims, or a decline in sales volume. The Group has established internal standards based on JIS and other standards, and strives to maintain and improve product quality and reliability.

Foreign currency-denominated transactions are conducted mainly in U.S. dollars, and while the Group uses forward exchange contracts and other measures to address this, it is difficult to completely eliminate fluctuation risk. Interest-bearing debt outstanding was ¥769.9 billion (at the end of the consolidated fiscal year), and interest rate fluctuations could affect business performance. In addition, there is a risk that fundraising may not be carried out under the terms initially expected due to an economic downturn, deterioration in the financial environment, a decline in creditworthiness, or divestment trends related to carbon neutrality.

The amount of investment securities recorded on the consolidated balance sheet was ¥215.4 billion (at the end of the consolidated fiscal year), and fluctuations in the share prices of listed stocks could affect business performance. Fluctuations in the share prices of listed stocks comprising the retirement benefit trust could also give rise to actuarial differences in retirement benefit accounting. In addition, impairment due to a decline in the fair value or profitability of held fixed assets, or valuation losses due to a decline in the profitability of inventory assets, could affect business performance.

The Group conducts business activities using a diverse range of systems built globally, and has established management systems and security measures to prevent unauthorized access and information leaks caused by cyberattacks and other threats. If customer information or personal information is leaked, or confidential business or technical information is leaked or misused, this could affect business performance through damages, loss of competitive advantage, or a decline in social credibility. If a system failure occurs due to a cyberattack, this could also lead to a suspension of production or operations.

The Group operates sites that handle high-temperature, high-pressure equipment such as blast furnaces and converters, as well as hazardous materials, and if a serious industrial accident or equipment accident occurs, this could affect business performance through a decline in production volume, equipment restoration costs, and compensation costs. If a large-scale earthquake, typhoon, or other natural disaster, or a pandemic, war, or terrorism, disrupts logistics or supply networks or causes infrastructure failures, this could also lead to a decline in net sales and orders received, as well as increased production and restoration costs. The Group strives to minimize damage by preparing emergency response measures, establishing communication systems, and conducting regular drills.