KOGI CORPORATION

The Group, whose main business is Casting Field, is heavily dependent on the domestic market, and trends in private and public capital investment as well as changes in the production activities of major customers directly affect operating results. The casting-related business is expected to face continued market maturation, and while the Group is working on developing high value-added products and expanding into new markets, the risk of demand decline due to economic fluctuations continues to exist. As a countermeasure, the Group is diversifying risk through the establishment of a Basic Materials Business Division—integrating the Large Castings Business Division and the Steel Business Division—and by strengthening the Environmental Engineering Business Division.

The performance of the casting-related business is significantly affected by market conditions and purchase price fluctuations of key raw materials, including pig iron, scrap, and ferroalloys such as nickel. When prices surge, it takes time to pass on the increased raw material costs to selling prices, which may lower profit margins, and if geopolitical risks materialize, stable procurement of raw materials could become difficult. The Group addresses this through accurate procurement decisions based on information gathering and by maintaining and securing appropriate inventory levels.

The casting-related business consumes a large amount of electricity, and if electricity rates rise due to changes in the domestic power supply environment accompanying the expanded adoption of renewable energy, this could affect operating results. Since electricity costs account for a large portion of manufacturing costs, rate increases directly compress profitability. The Group is working to minimize this risk by building a production system that pursues resource and energy conservation.

At the overseas subsidiaries established in China, Tianjin Hongang Casting Steel Co., Ltd. and Nantong Hongang Casting Steel Co., Ltd., if unforeseen events occur such as changes in the local political and legal environment, sudden changes in economic conditions due to US-China trade friction, or social unrest, business operations could be disrupted. The Company has appointed its executive officers as general managers of the overseas subsidiaries, established a system of regular reporting and advice to the Board of Directors, and is strengthening management and support functions through the Overseas Business Division.

If manufacturing facilities are damaged by earthquakes, typhoons, flood damage, or unforeseen accidents, operations may be disrupted, potentially affecting operating results. In the casting-related business, which is highly dependent on manufacturing equipment, production stoppages pose a risk of directly leading to sales losses. The Group strives to reduce this risk through regular maintenance inspections and capital investment, the formulation and drilling of business continuity plans (BCP), and the operation of a systematic occupational health and safety framework.

The Group holds listed and unlisted shares, and if market conditions deteriorate or the performance of investee companies worsens, causing a significant decline in the market value or intrinsic value of these shares, this could affect operating results. For shares held for pure investment purposes, the Group has established a system for flexible sale, and for shares held for purposes other than pure investment, it periodically reviews the rationality of the holding purpose and sells the shares as appropriate if such rationality is not recognized.

If the market value of held fixed assets declines significantly or business losses continue, recognition of impairment losses could have a material impact on operating results and financial condition. In particular, the facilities of the casting-related business are large in scale, and the impact would be significant if impairment losses occur. The Group strives to identify potential impairment risks through the regular implementation of impairment tests and, as needed, real estate appraisals.

The recoverability of deferred tax assets depends on estimated future taxable income, and if factors affecting the estimation of taxable income arise due to performance fluctuations or other factors, deferred tax assets may need to be revised, potentially causing fluctuations in net income. Estimates of future taxable income and tax planning are considered in assessing recoverability, but there is a risk that additional valuation allowances will need to be recorded when performance deteriorates. The relevant departments work regularly with the audit firm to identify potential tax risks.

If the spread of infectious diseases such as COVID-19 disrupts production systems, logistics systems, or sales activities, this could significantly affect operating results. There are also concerns about the impact on performance if a sudden economic downturn occurs due to disruption of global supply chains. The Group is working to continue its business and sales activities by thoroughly managing employee health, introducing telework and web conferencing, and reviewing business travel restrictions and work arrangements.

In the collaboration with Koguchi Alloy Casting Co., Ltd., an aluminum alloy casting manufacturer that became a subsidiary in 2024, if the expected synergy effects are not achieved or unexpected costs arise in the integration process, this could affect operating results. The Group aims to strengthen and expand its sales base through synergies from collaboration with this company, but operational risks associated with the integration exist.