CK SAN-ETSU Co.,Ltd.

Copper and zinc, the main raw materials, are internationally traded commodities, and sharp fluctuations in market prices may generate unrealized gains or losses on inventory, as well as raw material shortages and production disruptions due to speculative hoarding. In addition, if raw material prices continue to rise, there is a risk that demand for brass products could decline as customers switch to alternative materials other than brass. As a countermeasure, the Company hedges risk through derivative transactions in copper and zinc.

Copper Rolling & Extrusion products, the Group's core products, compete with aluminum, stainless steel, resin, and other materials, and there is a possibility that demand could be lost due to the unexpected emergence of alternative products. Copper Rolling & Extrusion products are used in a wide range of applications due to their excellent electrical properties, thermal conductivity, and corrosion resistance, but material substitution driven by technological innovation would directly affect business performance.

The Group's products are used across a wide range of industrial fields, and changes in economic conditions and trends in demand sectors may affect business performance. If an economic downturn or a decline in demand in specific industries occurs, there is a risk of a significant drop in sales and earnings.

The Group has established local subsidiaries in China and Taiwan to conduct the Copper Rolling & Extrusion business and other operations, but there is a possibility that continuing operations could become difficult due to tightened regulations or legal restrictions imposed by political authorities in each country. Geopolitical risks and changes in the regulatory environment are difficult to predict and could seriously impede business operations. The Administration Division and the Audit & Standards Management Office coordinate with overseas subsidiaries to establish a system for early detection and correction of problems.

If a large-scale earthquake, natural disaster, accident, or similar event causes damage to plant facilities or employees, or if the supply chain is disrupted, business performance may be affected. The manufacturing process, which uses electric furnaces, is highly dependent on equipment, and the risk of production stoppage in the event of a disaster is significant. As a countermeasure, the Company has formulated a BCP and is working to strengthen the supply chain by establishing alternative production systems at other plants within the Group and diversifying its sourcing.

Because copper and zinc are melted in electric furnaces to produce brass alloys, if a deterioration in Japan's domestic power supply situation prevents the Company from securing sufficient electricity, production disruptions may occur. While it is difficult to predict the extent or timing of this risk materializing, the Company anticipates alternative production at other Group plants where the power supply situation has not deteriorated.

The Group plans to continue utilizing M&A and business alliances as effective means of business expansion, but there is a possibility that the originally intended outcomes may not be achieved due to unforeseen economic conditions or changes in the business environment. Although the Company intends to gather sufficient information and conduct thorough consideration, there is a risk that goodwill impairment or increased integration costs could adversely affect business performance and financial condition.

In addition to increased depreciation expenses resulting from large-scale capital investment, impairment losses may arise if the market value of held assets declines significantly or profitability deteriorates due to worsening market or business conditions. The recognition of impairment losses would have a direct adverse effect on business performance and financial condition. Currently, the Company does not plan any large-scale capital investment.

Revisions to or tightening of environmental laws and regulations may result in additional burdens such as new purification and removal measure costs or unplanned capital investment. Waste and by-products are generated in the course of production activities, and tightening of related laws and regulations would directly affect business performance. While the Company strives to use materials and maintain manufacturing environments in compliance with environmental regulations, the risk of future regulatory changes cannot be eliminated.

Securing and developing excellent human resources is necessary for continued growth and development, but if recruitment and development do not proceed as planned, business performance may be adversely affected. Amid intensifying competition for skilled personnel and specialized talent, along with the challenge of passing on manufacturing-specific skills unique to the industry, a shortage of human resources could lead to a decline in production capacity and technical capability.