KYOEI STEEL LTD.

There is a risk that prices of steel scrap, auxiliary materials such as electrodes and ferroalloys, and energy resources such as oil and LNG may rise or become subject to supply shortages due to global supply-demand fluctuations and geopolitical factors such as the situation in the Middle East. This could affect business performance through increased manufacturing and transportation costs and decreased production and sales volumes. As countermeasures, the Group is engaged in information gathering across three global regions (Japan, Vietnam, and North America), establishment of satellite yards, strengthening alliances with multiple procurement sources, reducing electricity consumption per unit through AI utilization, and reviewing commercial practices to pass on costs to product prices.

While the domestic electric arc furnace industry faces a structural oversupply problem, demand for construction steel materials is expected to continue its declining trend due to construction delays and reviews caused by labor shortages at construction sites, work-style reforms, and soaring material prices. Intensified competition with rival manufacturers could affect business performance through falling sales prices and decreased shipment volumes. As countermeasures, the Group is strengthening its three-pole global structure, pursuing business investment based on a glocal and niche strategy, enhancing its presence in the Kanto region centered on the Kanto Business Office, and promoting a brand strategy centered on "Ethical Steel".

Both "transition risks," such as stricter greenhouse gas emission regulations, introduction of carbon pricing, and the burden of capital investment for decarbonization, and "physical risks," such as adverse effects on plant operations, procurement of raw materials, and employee safety due to abnormal weather events such as typhoons, floods, and extreme heat, could affect business performance. The Climate Change Subcommittee under the Risk Management Committee conducts scenario analysis based on the TCFD framework, and the Group is advancing measures such as reducing energy consumption per unit, fuel conversion, installation of solar panels, and formulation of BCPs.

Overseas subsidiaries in Canada and Vietnam conduct steel product sales and steel scrap import transactions primarily denominated in U.S. dollars, and exchange rate fluctuations exceeding expectations could affect consolidated business performance. In addition, if interest rates rise sharply in fund procurement through financial institution borrowings and bond issuances, increased fund procurement costs could affect business performance. As countermeasures, the Group is working to reduce foreign exchange risk through forward exchange contracts and holding matched foreign-currency-denominated asset and liability positions, fixing interest rates through fixed-rate borrowings and interest rate swaps, and improving fund efficiency through inventory reduction and effective utilization of intra-group funds.

The Group holds fixed assets such as production equipment and land, primarily in its domestic and overseas steel businesses, and if the expected effects of capital investment are not realized or if estimated future cash flows decrease, impairment losses may occur, affecting business performance. The amount of goodwill related to corporate acquisitions recorded on the consolidated balance sheet is ¥600 million. The Group is working to strengthen verification of investment effectiveness and profitability for large-scale capital investments, while striving to maintain business profitability on an ongoing basis through the cross-group deployment of manufacturing technology and know-how.

If cyberattacks or similar incidents occur, business and operational stoppages, leakage of confidential information, reputational damage, and other consequences may occur, and information system or network failures could also affect business performance through business and operational stoppages. As countermeasures, the Group has implemented infrastructure measures such as network perimeter defense, regular backups, vulnerability detection, and use of monitoring services, risk management through the Information Security Subcommittee, collaboration with specialized security companies, and redundancy of network lines and standardization of failure recovery procedures.

At subsidiaries in Vietnam, the United States, and Canada, there is a risk that business activities may stagnate due to unforeseen changes in political, legal, regulatory, or social systems. If constraints on decision-making and business operations at joint venture companies, or credit risk arising from deteriorating performance of overseas business partners, materialize, this could affect business performance or financial condition. As countermeasures, the Group implements regular reporting from local management, proactive collection of legal and tax information using external experts, clarification of role divisions in joint venture agreements, and thorough credit management through setting credit limits by business partner and obtaining collateral.

Many of the Group's products are related to buildings and structures that could affect the life and property of an unspecified number of people, and if quality problems occur, this could affect business performance through loss of official certifications such as JIS, loss of business, and reputational damage. As countermeasures, the Group is advancing cross-group quality oversight and planned quality audits by the Quality Control Department, improvement instructions from the Central Quality Control Committee, ISO9001 certification, and strengthened hardware-based quality control through the introduction of flaw detection equipment, automatic measuring instruments, and automatic transmission systems.

The medium-term management plan "NeXuS II 2026," announced in April 2024, is based on information and analysis available at the time of formulation and contains uncertain elements, meaning that even if initiatives are completed, the intended effects may not be achieved. Affected by numerous risk factors described in the securities report, such as fluctuations in raw material prices, declining domestic demand, climate change, and exchange rate fluctuations, the Group may fail to achieve its targets within the plan period, or may fail to achieve them at all. The Group is proceeding with the plan's execution while implementing individual countermeasures for each risk, but the plan may need to be revised depending on changes in the external environment.

Amid a tightening labor market and increasing labor mobility due to the declining birthrate, if the Group is unable to acquire and develop personnel who can contribute to realizing its vision of being "an essential company in a resource-recycling society," this could affect business performance over the medium to long term. In addition, if human rights issues such as long working hours or harassment occur, this could damage employee health, reduce productivity, and lower engagement; furthermore, neglecting human rights issues in the supply chain could lead to reputational damage and litigation risk affecting business performance. As countermeasures, the Group implements human capital measures based on four themes: "material benefits," "self-actualization," "solidarity and teamwork," and "empathy with corporate philosophy," as well as formalizing and publishing its human rights policy and operating assessment and consultation services.