KANEMATSU CORPORATION

An economic slowdown in the global economy, including Japan, the United States, China, Europe, and emerging Asian countries, may lead to a decline in sales due to stagnant demand or significant declines in market prices. Since the Group conducts a wide range of commercial transactions, business investments, and service provision globally, deterioration of the economy in a specific region could have a broad adverse impact on operating results and financial condition. Recognition of the macroeconomic environment is disclosed periodically in Management's Discussion and Analysis of Financial Condition, etc.

There exist foreign exchange fluctuation risks associated with import/export transactions, interest rate rise risks related to variable-rate borrowings, and price fluctuation risks for commodities such as grains, livestock products, and petroleum products. Although hedging is implemented through derivative transactions such as forward exchange contracts and commodity futures transactions, unexpected losses may arise due to sharp market fluctuations or declining demand when commodity positions are expanded. A system has been established to set position limits and loss limits for each internal organizational unit and company, with prompt reduction implemented in the event of an excess.

In the diverse credit extended to domestic and overseas business partners in the form of accounts receivable, advance payments, loans, guarantees, and the like, delays in collection or default may occur due to deterioration in the financial condition of business partners. Although allowances are established, there is a risk that losses may exceed the scope of such allowances, resulting in additional losses. Ratings and credit limits are set for each business partner, with regular monitoring and protective measures such as insurance coverage implemented, but complete avoidance of credit risk is not guaranteed.

In transactions and investments/loans overseas, delays or inability to collect payments may occur due to deterioration of the political or economic situation in the country of investment. Should risks materialize in specific countries or regions, continuation of the relevant business and transactions may become difficult, potentially affecting operating results. Country risk ratings and limits are set for each country and region, and measures such as avoiding concentration of exposure and obtaining trade insurance coverage are implemented.

In growth investments under the medium-term management plan "integration 1.1," there is a risk that the value of an investment may fluctuate due to deterioration in the financial condition of an investee or business failure, resulting in a partial or total loss on the investment or the need for additional capital contributions. Depending on local laws and regulations and relationships with partners, it may also not be possible to develop or withdraw from a business as intended by the Group's policy. Investment criteria and withdrawal criteria have been established, and efforts are made to minimize losses through prior and subsequent deliberation at project review committees.

Tangible fixed assets, goodwill, and intangible assets held by the Group are exposed to impairment risk, and when asset values decline, impairment processing may become necessary, potentially affecting operating results. Since the medium-term management plan calls for growth through business investment, the amounts of goodwill and identifiable intangible assets arising from business combinations may increase in the future, potentially expanding impairment risk. The status of relevant assets and recognized impairment losses are disclosed in the notes to the consolidated financial statements.

Since business funds are raised through borrowings from domestic and overseas financial institutions and corporate bonds, disruption in financial markets or a significant downgrade of credit ratings by rating agencies may impose constraints on fundraising or increase the cost of raising funds. Efforts are made to minimize liquidity risk through asset-liability management and by raising funds appropriate to the nature of the assets.

In business activities subject to a wide range of laws and regulations in Japan and other countries, unforeseen changes in laws, import/export regulations, punitive tariff measures, or changes in licensing regulations may make it difficult to continue transactions, or may result in unexpected costs arising from litigation or orders from authorities. This also includes tax risks arising from agreements between authorities or countries regarding international taxation and changes in tax rates. While the Group exercises the utmost care in complying with laws and regulations, regulatory changes may affect operating results and financial condition.

As cyberattack methods become increasingly sophisticated and frequent year by year, the possibility of leakage of confidential corporate information or personal information due to unauthorized external access or computer virus intrusion, or the shutdown of information systems due to natural disasters or accidents, cannot be completely eliminated. Should such an event occur, in addition to a decline in operational efficiency, depending on the scale of damage, it may affect operating results and financial condition. The Group is working to establish information security management regulations and thoroughly implement crisis management response.

Due to the effects of worsening social and environmental issues such as climate change and respect for human rights, business continuity may be restricted. In addition, should environmental pollution or labor issues arising from the Group's business occur, this could lead to business suspension, pollution remediation costs, damages, and a decline in social reputation. While key material issues to be prioritized have been established and communicated, and a Sustainability Promotion Committee has been established to build a proactive framework for resolving issues, unforeseen events may affect operating results and financial condition.