NIPPON CHUTETSUKAN K.K.

Steel scrap and petroleum-related products, the main raw materials, account for approximately half of manufacturing costs, and there is a risk that procurement costs will fluctuate significantly due to changes in international market conditions. Some raw materials are difficult to switch suppliers for due to their special or scarce nature, so price increases directly impact manufacturing costs. The Group strives to secure stable procurement by securing multiple procurement sources, but there is no guarantee that cost increases can be completely avoided.

There is a risk that delivery delays may occur due to material supply shortages caused by fluctuations in international market conditions and other factors. In particular, for raw materials with high specificity or scarcity, switching suppliers is not easy, and disruptions in procurement directly affect production activities. The Group addresses this by securing multiple procurement sources, but if supply shortages become prolonged, the impact on business performance may become significant.

Many of the parts attached to the Group's main products are procured from suppliers for sale, and there is a risk that purchase prices will fluctuate due to cost increases accompanying changes in various prices. When it is difficult to pass on increases in parts costs to selling prices, this becomes a factor that squeezes profit margins. Under the recent environment of rising prices, this risk is prone to materializing.

Since the electric arc furnace began production operations in July 2025, it consumes a large amount of electricity during operation, so increases in electricity prices directly affect manufacturing costs. There is a risk that manufacturing costs will fluctuate due to increases in electricity prices accompanying changes in various prices, and the importance of electricity costs is increasing with the full-scale operation of the electric arc furnace. Electricity cost management is becoming an important factor affecting future profitability.

Many of the products handled by the Group are for public works projects for local governments and other entities, and net sales are heavily dependent on the public works budget for each fiscal year. If the public works budget fluctuates significantly, domestic demand and market prices will fluctuate, potentially having a significant impact on net sales and business performance. This is a structural risk in which changes in the fiscal conditions and policy stances of the government and local governments become direct factors causing demand fluctuations.

The Group sells cast iron pipes and other water and sewage equipment and materials through distributors in each region, and there is a risk that it may become difficult to collect receivables from distributors. Although credit limits are determined after scrutinizing the scale and financial condition of each company, bad debt losses may occur due to unforeseen deterioration in a distributor's business condition. Because the Group adopts an indirect sales model through distributors, there is a structural challenge in that it is difficult to directly grasp the creditworthiness of end users.