Nippon Denko Co., Ltd.

The selling prices of ferroalloy products are linked to international market conditions, and fluctuations in domestic crude steel production have a significant impact on business performance. Economic conditions and tariff policies in China, India, the U.S., and other countries affect crude steel production and ferroalloy demand through their impact on Japan's export trends, while economic activity stagnation resulting from the materialization of geopolitical risks is also a factor in demand decline. As a countermeasure, the Company is implementing agile revisions of production plans and reconsideration of its production system.

The prices of raw materials and fuels such as manganese ore, coke, rare earths, and crude oil are linked to international market conditions, and fluctuations in resource supply and demand, changes in the circumstances of resource-exporting countries, and natural disasters affect business performance. The proportion of electricity costs in manufacturing costs is relatively high, and increases in electricity prices caused by raw material and fuel price fluctuations also put pressure on earnings. The Company is working to stabilize its supply chain and reduce manufacturing costs through the use of low-cost raw materials and diversification of raw material sources.

If greenhouse gas emission regulations such as a carbon tax or an emissions trading system are introduced, there is a transition risk that manufacturing costs will increase due to rising raw material and electricity prices, leading to lower earnings. There is also a physical risk of operational shutdowns, logistics disruptions, and increased damage costs arising from the intensification of extreme weather events such as typhoons and floods. The Company is addressing both the risk and opportunity aspects by adopting low-carbon processes such as the use of wood-based coke and hydrogen reduction.

As the Company conducts transactions based on foreign-currency-denominated international market conditions, primarily in the Ferroalloy Business, exchange rate movements directly affect net sales and business performance. Exchange rate fluctuations also affect the purchase prices of foreign-currency-denominated raw materials and the valuation of foreign-currency-denominated assets and liabilities. Specific measures such as foreign exchange hedging are not explicitly stated in the securities report, but the Company manages risk using financial instruments such as interest rate swaps.

Financial covenants are attached to the commitment line agreements with financial institutions, and if business performance deteriorates significantly, fund procurement under these lines may be restricted. As the Company holds a relatively substantial amount of interest-bearing debt, there is also a risk that increased financial costs during periods of rising interest rates will put pressure on business performance. The Company strives to secure stable earnings and improve and strengthen its financial condition through the steady execution of its medium- to long-term management plan.

If the market value of held fixed assets declines significantly, or if investment recovery becomes unlikely due to a decline in business profitability, impairment losses may arise and affect business performance. In particular, changes in the business environment of overseas business investees or operational underperformance could trigger impairment. The Company seeks to improve and stabilize profitability through the steady execution of its medium- to long-term management plan.

Changes in laws and regulations applicable to business activities may affect business performance, and the impact of regulations related to CO2 emissions in particular is recognized as significant. Strengthening of domestic and international laws and regulations related to waste may also become a factor in incurring additional costs. The Company maintains a strict compliance system through the timely collection of information on regulatory revisions and employee education.

There is a risk that cyberattacks such as ransomware, large-scale power outages, and unexpected system failures could result in the suspension of production activities and operations, leakage of confidential information to outside parties, delays in financial closing operations, litigation, and loss of social trust. The Company implements multi-layered defense measures, including the use of data centers and cloud services, installation of firewalls, diversification of operating systems, virus countermeasures, targeted email attack training, and security audits by external organizations.

If large-scale natural disasters such as typhoons, earthquakes, or tsunamis, or serious industrial accidents or equipment accidents occur, operations and shipments may be disrupted, affecting business performance. The spread of infectious diseases such as novel influenza is also a risk factor that could constrain business activities. In addition to seismic reinforcement of facilities, tsunami countermeasures, and renewal of aging equipment, the Company implements BCP formulation and practical drills, as well as regular safety activities (risk assessment and hazard prediction activities).

If human resource acquisition and development do not proceed as planned due to a decline in the domestic working population resulting from the declining birthrate and aging population, or due to a decline in employee retention resulting from insufficient cultivation of corporate culture, this may affect business activities aimed at sustainable growth. The Company is making active investments in human capital, including strengthening recruitment activities, developing training systems and improving the work environment, and promoting diverse working styles. It is also working to build an attractive corporate structure through the innovation of production, operations, and business using DX.