CANOX CORPORATION

If prices of steel materials such as steel plates, steel pipes, and stainless steel fluctuate sharply and significantly, it may become difficult to pass on such costs to prices, potentially affecting business performance. This also entails risks in the distribution process such as excess inventory, stockouts, and financing, and the Company strives to respond rationally by promptly analyzing information on usage volumes at sales destinations and production volumes at supplier manufacturers.

The balance of steel products accounts for approximately 20-30% of total assets, and if a significant discrepancy arises between book balances and actual physical inventory, it could have a material impact on the financial position and business performance. As countermeasures, the Company conducts semi-annual physical inventory counts at its own warehouses, and at consignment warehouses, verifies inventory storage certificates against book balances and conducts physical inventory counts based on the "Inventory Count Implementation Standards."

Approximately 60% of net sales are derived from the automotive industry, of which transactions with the Toyota Motor group account for approximately 40% of net sales, resulting in high customer concentration risk. If demand for existing steel materials declines due to the shift to EVs, or if domestic production decreases due to a shift toward overseas production, it could have a significant impact on business performance. The Company is addressing this by building a supply system for multi-materials such as aluminum, titanium, and resin, and by strengthening relationships with parts manufacturers.

Credit risk exists with respect to accounts receivable and other items from domestic and overseas business partners, and if a business partner's creditworthiness deteriorates and problems arise in fulfilling large debt obligations, it may affect business performance. The Company implements credit management based on the "Transaction Limit Management Regulations," and strengthens monitoring of business partners requiring attention through interviews including top management.

The Company holds cross-shareholdings primarily in business partners, and if a sharp decline in stock prices occurs due to market fluctuations or deterioration in the business performance of investee companies, it could affect ROA and ROE, as well as result in impairment of held shares, thereby affecting the financial position and business performance. The Company periodically confirms the rationale for holding such cross-shareholdings and adopts a policy of reduction, while conducting continuous monitoring of stock prices.

All variable interest rates on interest-bearing debt are linked to Tibor, and if a significant rise in interest rates occurs due to the impact of the Bank of Japan's monetary policy, it could lead to an increase in interest expenses and affect business performance. The Company strives to reduce risk through a combination of variable and fixed interest rates, reviewing the total amount and long-/short-term balance of interest-bearing debt, and improving free cash flow.

The Company strives to prevent misconduct, illegal acts, and accidents by officers and employees through the activities of its Compliance, Health and Safety, Internal Control, and Risk Management committees. However, if a serious act of misconduct or accident occurs due to malicious intent, gross negligence, or unforeseen events on the part of employees or others, it could affect business performance. The Company is working to strengthen checking functions and improve their effectiveness.

If social disruption occurs due to natural disasters such as earthquakes or floods, fires, the spread of infectious diseases, terrorism, war, or similar events, it could affect business performance through suspension of business activities, loss of opportunities, and significant recovery costs. The Company has taken measures such as obtaining property insurance, implementing earthquake-resistant construction, and utilizing remote work, but the risk of damage exceeding current expectations cannot be ruled out.

If infrastructure failures occur due to external cyberattacks or intrusion by computer viruses, it could result in the leakage or loss of confidential information, affecting the financial position and business performance. In addition to measures and employee training based on the "Information Security Management and Operation Regulations" and enrollment in cyber insurance, the Company has established a recovery system involving the immediate dispatch of system professionals in the event of an unforeseen incident.

Metal One Corporation is a major shareholder of the Company and is in a position to potentially influence the Company's management through the exercise of voting rights at shareholders' meetings, among other means. Depending on trends in Metal One Corporation's management policy, this could affect the management structure of the Company Group; however, at present, market territories and distribution channels are segregated, ensuring the Company's management independence. Transactions with the Metal One Group during the consolidated fiscal year under review consisted of sales of ¥962 million and purchase and processing transactions of ¥3,168 million (total of ¥4,131 million), with steel material prices based on prevailing market prices.