NIPPON KINZOKU CO., LTD.

The Group's products are sold in major markets such as Japan, North America, Europe, and Asia, and an economic downturn could adversely affect business performance and financial condition. In particular, for the automotive industry, which accounts for a large portion of sales, changes in demand structure due to the progress of EVs and CASE constitute an additional risk factor. As a countermeasure, the Group has indicated a policy of taking response measures in preparation for such occurrences.

The ratio of overseas sales is 22.0%, and when indirect overseas sales through customers are included, the ratio becomes substantial, making the Group susceptible to the effects of exchange rate fluctuations. Since the financial statements of overseas subsidiaries are prepared in local currencies, sharp fluctuations in exchange rates and interest rates could adversely affect business performance and financial condition.

The price of stainless steel, the Group's main raw material, may fluctuate significantly due to domestic and overseas steel supply-demand trends, resource policies, natural disasters, international conflicts, speculative trading, exchange rate fluctuations, and other factors. Such price fluctuations directly affect manufacturing costs and could adversely affect business performance and financial condition.

The Group procures main raw materials such as stainless steel from companies outside the Group, and if a supplier is unable to supply the required quantity as planned due to a disaster or other event, there is a risk of production delays and lost sales opportunities. If risks related to the concentration of the supply chain materialize, this could adversely affect business performance and financial condition.

In the stainless steel industry, competition is intensifying due to market entry, expansion, and strengthening by domestic and overseas manufacturers, and demand and price trends are also affected by economic conditions, exchange rates, and overseas political, economic, and legal environments. Such changes in the competitive environment could adversely affect the Group's profitability.

Although the Group actively invests in continuous research and development, if new product development does not proceed as expected due to rapid technological advances or changes in customer needs, there is a risk that future growth and profitability will decline. Delays or failures in new product development could adversely affect business performance and financial condition.

Although the Group has established strict quality control standards, it cannot guarantee the complete elimination of defects in all products or the complete prevention of recalls. Although the Group carries product liability insurance, if a large-scale recall or claim for damages occurs, substantial costs not covered by insurance and significant impacts on corporate reputation may arise, which could adversely affect business performance and financial condition.

There is a risk that impairment losses may be recorded on fixed assets such as production facilities and land if profitability declines due to changes in the business environment or other factors, making recovery of the invested amount unlikely. In addition, if there are changes in estimates of future taxable income, deferred tax assets may need to be written down, which could adversely affect business performance and financial condition.

In sales to China, other Asian countries, and Western countries, risks such as unexpected changes in laws and tax systems, unfavorable political and economic factors, and terrorism, war, and social unrest are always inherent. Should such events occur, they could adversely affect the execution of overseas business.

Securing capable engineers and skilled technicians is essential for the development and manufacture of new technologies and products, and the Group is focusing on securing and developing human resources. However, if the Group is unable to continue securing and developing capable personnel, this could lead to a decline in technological capability and competitiveness, which could adversely affect business performance and financial condition.