ARAYA INDUSTRIAL CO., LTD.

There is a risk that international-scale steel industry restructuring or trading company mergers could destabilize material procurement and product purchasing/sales routes. Customers' purchasing sources may change for policy reasons, or business partners may change, potentially making it difficult for the Group to maintain its independence. The Group continues to pursue a policy of maintaining independence, but is closely monitoring industry restructuring trends.

There is a risk that rising costs due to exchange rate fluctuations and downside risks to the domestic and overseas economy could affect business performance. Since the Steel Pipe Related business is linked to international market conditions, changes in exchange rates and economic trends directly affect earnings. No specific countermeasures are disclosed in the Annual Securities Report.

Market prices for thin sheets (steel strips) of ordinary steel and stainless steel are determined by manufacturers based on global supply-demand balance and fluctuations in raw material prices such as iron ore, coking coal, and nickel, and are beyond the Group's control. In the event of a sharp price surge, delays in passing on rising material costs and purchase prices to sales prices could pressure earnings, while in the event of a sharp price decline, held inventories could be affected by falling sales prices due to expectations of further price drops. The Group negotiates prices with trading partners while closely monitoring market prices at all times.

If the risk of non-performing receivables in the steel industry increases due to economic downturn or weak demand, additional provisions for doubtful accounts may be required due to deterioration in customers' financial condition and payment capacity. The Group individually assesses the collectability of receivables such as notes and accounts receivable, and records estimated uncollectible amounts as an allowance for doubtful accounts. However, if customer credit deteriorates beyond expectations, an impact on business performance is unavoidable.

If actuarial differences arise due to deterioration in the pension asset investment environment, retirement benefit obligations may increase, leading to an increase in the amount of liabilities expensed, which could affect business performance. There is also a possibility that the retirement benefit system itself may need to be reconsidered. The Group accounts for retirement benefit obligations in accordance with Japanese accounting standards, but no specific countermeasures against changes in the investment environment are disclosed in the Annual Securities Report.

If the stock prices of investment securities held by the Group decline significantly, impairment or valuation losses may occur, adversely affecting operating results and financial condition. In a broad stock market downturn, there is a risk that the market value of held stocks could decline significantly. Specific holdings, amounts held, and risk mitigation measures are not disclosed in the Annual Securities Report.

If the Group suffers direct damage from large-scale earthquakes, major typhoons, or other natural disasters, or is forced to suspend production activities, there is a risk that gross profit will be pressured by a decline in sales volume, in addition to the recording of disaster losses, affecting business performance. The risk to business continuity is particularly high if manufacturing sites are damaged. Specific details of the BCP (business continuity plan) are not disclosed in the Annual Securities Report.

If an infectious disease outbreak occurs and spreads widely and over a long period, there is a possibility that the Group's business performance could be affected by a decline in sales volume and production volume. Restrictions on manufacturing and sales activities and reduced demand pose a risk of directly pressuring earnings. Specific infectious disease countermeasures and business continuity measures are not disclosed in the Annual Securities Report.