THE JAPAN STEEL WORKS, LTD.

The Group, whose business is centered on capital investment-related operations, has its performance affected by domestic and overseas economic and policy trends. Since product delivery times are long, changes in procurement prices and exchange rates may cause declines in profitability or additional costs, potentially resulting in costs exceeding initial estimates. In response, the Group works to gather information on global economic trends at an early stage, and when such events occur, reflects them in performance forecasts and reallocates management resources accordingly.

As the export ratio has remained at approximately 50% each year and a relatively long period is required from order receipt to sales recognition, exchange rate fluctuations during this period affect profit and loss. Exchange rate fluctuations in foreign currency-denominated transactions may also affect relative competitiveness against overseas competitors, and could impact the Group's financial position and business results. In response, the Group conducts hedging transactions such as forward exchange contracts with financial institutions for major currencies including the US dollar and euro, based on internal regulations.

The procurement of raw materials, components, and other items is affected by fluctuations in exchange rates, market conditions, and energy prices. Quality problems, supply shortages, delivery delays, production stoppages due to disasters, or sharp increases in procurement prices due to sudden market changes may impact the Group's financial position and business results. In response, the Group promotes multi-supplier purchasing and appropriately examines and selects alternative procurement sources to mitigate such impacts.

The burden of damage compensation arising from non-conformance with contracts, such as performance defects or flaws in products made to individual order, may impact the Group's financial position and business results. As a recurrence prevention measure based on past instances of inappropriate conduct, the Group has established a Quality Control Office to strengthen monitoring and supervision of quality assurance activities at each manufacturing plant. The Group also mitigates financial impact by maintaining product liability insurance and comprehensive corporate liability insurance.

As the Group operates globally, changes in international relations may lead to changes in policies and regulations, restrictions on technology transfer, tariff increases, and other factors that could necessitate restructuring of business activities or increase costs for regulatory compliance. The Group also recognizes specific risks such as export controls in China and heightened tensions in the Middle East, and works to respond appropriately and in a timely manner through information gathering from business partners.

If confidential information (such as sales information and personal information) is leaked or lost due to external cyberattacks or unauthorized access, this may result in the suspension of production or business operations and loss of social credibility, potentially impacting the Group's financial position and business results. In response, the Group performs backups across multiple data centers, has introduced a fraudulent email blocking system, has drafted cybersecurity action guidelines, and provides information security education to employees.

In capital investments made to strengthen the competitiveness of existing businesses or to develop new businesses, if recovery through future cash flows is not expected, impairment of fixed assets may occur, potentially impacting the Group's financial position and business results. In response, the Board of Directors and the Management Strategy Meeting deliberate on the appropriateness of investment plans, and continuously monitor deviations between planned and actual investment effects even after implementation.

If physical or human damage or a decline in social infrastructure functions occurs due to earthquakes, wind and flood damage, fires, infectious disease pandemics, or other causes, this may impact business activities, financial position, and business results. In response, the Group conducts facility inspections and drills, and has established communication systems and a Business Continuity Plan (BCP) to prepare for the continuation of critical operations and early recovery in the event of a disaster, while also reviewing the content of its non-life insurance coverage every year.

In acquisitions of other companies, business alliances, joint venture establishment, joint development, or capital investments undertaken to develop new businesses or products, if the expected results are not sufficiently achieved, this may impact business activities, financial position, and business results. In response, the Group has established a framework in which the M&A and Alliance Council, the Management Strategy Meeting, and the Board of Directors deliberate on investment effects and risks to determine whether to proceed.

Securing and developing diverse talent and generating innovation are essential to sustainably enhancing corporate value; insufficiency in these areas may impact business activities, financial position, and business results. In response, the Group promotes diversification of new graduate and experienced-worker hiring, improved treatment of employees, and the creation of a rewarding workplace, while each manufacturing plant steadily carries out the transfer of technology and skills from veteran employees to younger employees based on medium- to long-term plans.