AICHI STEEL CORPORATION

Major demand for steel and forged products is concentrated in the automotive industry, and if the automotive industry is affected by deteriorating economic conditions, there is a risk that product demand will fluctuate significantly. In particular, the company's sales are highly dependent on Toyota Motor Corporation and the Toyota Group, resulting in a structure where trends in the company's automobile sales volume directly affect business performance. The Toyota Group holds 24.7% of the company's voting rights (including indirect ownership), meaning customer concentration risk is linked to the shareholder structure.

Prices of key raw materials such as steel scrap and ferroalloys fluctuate significantly due to the influence of international commodity markets, and there is also a risk of rising costs for energy such as electricity and LNG, as well as auxiliary materials such as electrodes and refractories. Although the company strives to pass on price increases to selling prices, if it is unable to do so, profitability will be directly squeezed. The company is also exposed to procurement difficulty risks arising from geopolitical risks and disasters or accidents affecting suppliers, and while it addresses these through diversification of suppliers and strengthening relationships, complete elimination of the risk is difficult.

Since the company depends on exports for part of its products and imports for the majority of its ferroalloys, fluctuations in foreign exchange rates have a significant impact on import and export prices as well as energy prices. The company is also affected by exchange rate fluctuations in foreign currency-denominated transactions and in the yen conversion of overseas subsidiaries' financial statements, which may affect its financial position and business results. There is no explicit statement in the securities report regarding specific countermeasures such as foreign exchange hedging.

The company expressed its support for TCFD in 2021 and has set targets of a 50% reduction in CO2 emissions by 2030 (compared to fiscal 2013) and achieving carbon neutrality by 2050. Strengthened customer demands and regulatory tightening may raise production costs and result in new tax burdens. The company is systematically promoting large-scale capital investment, including the development of next-generation steelmaking processes, but there is a risk that its financial position and business results could be affected if the initially expected effects are not achieved.

The company manufactures steel products and other items in accordance with a strict quality control system and standards, but if a quality defect occurs, it could result in significant cost burdens and a major impact on the company's reputation. Since products for the automotive industry are the company's core business, quality problems could have a large ripple effect on customers, carrying the risk of damaging business relationships. The company strives to maintain and strengthen its quality control system, but complete elimination of this risk is difficult.

The company holds confidential information and personal information belonging to customers and business partners, as well as its own confidential information, and faces the risk of system failures or information leaks due to intentional acts, including cyberattacks, or negligence. If information leakage occurs, it could lead to disruption of business activities and a decline in social trust, potentially affecting the company's financial position and business results. As digitalization progresses, the threat of cyberattacks is increasing, requiring continuous strengthening of countermeasures.

Many of the company's domestic plants and business partners are concentrated in the Chubu region, and if a large-scale natural disaster such as a major earthquake occurs, there is a risk that production and shipping activities will be delayed or halted. A prolonged suspension of operations could lead to decreased sales and increased recovery costs, potentially having a significant impact on the company's financial position and business results. This structural vulnerability of regional concentration is difficult to resolve in the short term, making the development of BCP an important issue.

The company is systematically promoting large-scale capital investment aimed at establishing a stable production base, improving productivity, and responding to carbon neutrality, but if the initially expected effects are not sufficiently achieved, this could affect its financial position and business results. In addition, if operations are interrupted due to trouble with manufacturing equipment, there is a risk of reduced production volume and increased repair costs. The company strives for stable operations through daily inspections and periodic repairs, but complete elimination of equipment trouble is difficult.

The company conducts production and sales in multiple countries, and adverse political and economic factors, unexpected changes in laws and regulations, and social disruptions caused by strikes, terrorism, war, disease, and the like could delay or halt production and shipping activities. Against the backdrop of rising geopolitical risk, the business continuity risk of overseas locations is increasing. A prolonged delay or suspension could have a significant impact on the company's financial position and business results.

Due to Japan's declining birthrate and aging population, it is becoming increasingly difficult to secure talented human resources, and if the company is unable to secure and develop personnel as planned, there is a risk of declining competitiveness. Skill succession and securing specialized personnel in the manufacturing industry are medium- to long-term management challenges, raising concerns about the impact on financial position and business results. The company is promoting initiatives to enhance and maximize the capabilities of its human resources, but intensifying competition in the labor market is making this increasingly difficult.