TOKYO STEEL MANUFACTURING CO., LTD.

The ordinary steel electric furnace industry is a market-driven industry, and product sales prices and the price of steel scrap, the main raw material, are heavily influenced by changes in domestic and overseas economic conditions and market trends. Since price fluctuations directly affect earnings, the stability of business performance may be impaired. The Company addresses this risk by strengthening coordination between the sales and production departments and thoroughly implementing production in line with demand.

In the electric furnace manufacturing process, electricity and fuel are important cost components, and a sharp rise in energy prices due to heightened geopolitical risk may affect financial position, business performance, and cash flow. Cost increases arising from external factors such as conflicts are difficult for the Company to control on its own and pose a risk of significantly compressing profitability. The Company seeks to minimize the impact through strengthened coordination between the sales and production departments and by building a flexible response framework.

A deterioration in economic conditions in the Asian region, a major export destination, or the introduction of protectionist policies, may change the order-taking environment. There is also a risk that expanded production capacity within Asia, leading to increased supply capacity, could intensify domestic competition through increased product exports to the Japanese domestic market. The Company strives to maintain and enhance its competitiveness through differentiation via product development and quality improvement that leverage the characteristics of electric-furnace steel products, together with thorough cost reduction.

Exports of steel scrap, the Company's main raw material, from Japan are increasing due to growing steel demand in the Asian region, which may lead to higher procurement prices and reduced supply volumes. Instability in raw material procurement poses a risk of rising production costs and disruption to operations. The Company addresses this by leveraging the advantage of using domestic steel scrap as its main raw material while thoroughly pursuing cost reductions.

Foreign exchange fluctuation risk arises in foreign-currency-denominated transactions related to export business. Although the Company seeks to avoid this risk through the use of forward foreign exchange contracts, it is difficult to eliminate all exchange rate fluctuation risk, including indirect effects. Sudden exchange rate fluctuations may affect export profitability and business performance. The Company strives to mitigate the impact through the use of hedging measures, but complete elimination of the risk is not guaranteed.

Future changes in laws, regulations, policies, and other matters, and situations arising from such changes, may affect business operations and performance. The content, scope, and timing of regulatory changes are difficult to predict, posing a risk of incurring response costs or facing constraints on business activities. The Company conducts its operations in accordance with current laws and regulations and intends to respond to changes as they arise.

If a disaster, power outage, or other disruptive event occurs at a production facility, damage may result from the interruption of manufacturing lines, and complete prevention or mitigation cannot be guaranteed. Given the nature of manufacturing operations, an operational suspension would directly affect sales and profit. The Company strives to avoid production disruptions through regular disaster prevention inspections and equipment checks at all plants, and by producing the same products at multiple sites.

The intensification of natural disasters caused by climate change poses a risk of operational suspension due to equipment failures caused by flooding, storm surges, and other events, or due to disruption of the supply chain. In addition, if greenhouse gas emission regulations such as a carbon tax or emissions trading scheme are introduced, operating costs such as electricity charges may rise sharply, potentially reducing profitability. Under its long-term environmental vision, "Tokyo Steel EcoVision 2050," the Company has set targets of reducing CO2 emissions intensity by 60% by 2030 compared to 2013 levels and achieving substantially net-zero emissions by 2050, and, in support of the TCFD recommendations, continues to analyze risks and opportunities and disclose related information.

The recoverability of deferred tax assets depends on estimates of future taxable income. If assumptions or premises change and the estimate of taxable income decreases, deferred tax assets may be reduced and tax expense may be recognized. In a downturn in business performance, downward revisions to taxable income estimates are more likely to occur, posing a risk of adversely affecting financial indicators. The Company records deferred tax assets after carefully assessing recoverability based on future profit plans.

If the value of fixed assets is impaired due to changes in business plans or market conditions, impairment accounting may be required, reducing the book value to the recoverable amount. Recognition of an impairment loss poses a risk of significantly worsening financial performance on a temporary basis. The Company appropriately recognizes and measures impairment through procedures that compare undiscounted future cash flows with book value for assets showing indications of impairment.