Hanwa : “Integrated Report 2022” has been published.

Aiming for management which contributes to the stable development of society

In April of this year, we celebrated the 75th anniversary of our founding. I am humbled to have been appointed the president in this momentous year. My term began under such troubled circumstances as interest rate hikes and Russia's military invasion of Ukraine. Working in tandem with Chairman Hironari Furukawa and Vice Chairman Yasumichi Kato, how- ever, we have determined a clear path forward and intend to manage the Company with even greater agility amid the massive changes taking place in world affairs.

Fortunately, in FY2021, we posted record high gains, with net sales of ¥2,164 billion and ordinary income of ¥62.7 billion. We had established a goal for ordinary income of ¥50 billion for FY2030, and I believe our achievement of this number ahead of schedule is truly the result of the efforts of our employees, and the cooperation of our business partners and everyone with whom we are involved. Our credit rating also rose from BBB+ to A-. We will be making every effort to maintain this going forward.

We are currently in the final fiscal year of our Ninth Medium-Term Business Plan, "Run up to HANWA 2030 - Challenge the unknown beyond the present." During this plan period, we have modeled the framework of our basic management policy after that of a building, composed of a foundation, first, second, and third floors.

The foundation is the implementation of "Management rooted in ESG and SDGs." No matter how the state of the world may change,

working toward a decarbonized society remains essential. Aiming to "Accelerate circular society," we intend to concentrate even greater effort in this area.

In the domain of "Realize renewable energy-based society," we are promoting our import business for palm kernel shells (PKS), wood pel- lets, and other biomass fuels, and we boast the greatest market share in Japan.

With regard to waste generated through consumption and usage activities, we were quick to engage in businesses involving the reuse of steel as well as the recycling of aluminum, copper and other non-ferrous special metals. We are also increasing our presence in the field of thermal recycling. For example, annually, we handle over 100 thousand tons of refuse paper and plastic fuel (RPF), which is primarily composed of waste plastics, waste paper, and other industrial waste.

In order to realize a decarbonized society, in the rapidly growing field of electric vehicles (EVs), we are moving forward with the construction of a global network for the procurement of lithium, nickel, cobalt, and other essential materials for vehicle batteries

Involving ourselves in the entire cycle from resource production to manufacturing, processing, and waste recycling will make our "Hanwa circular supply chain management" an even more effective measure, and enable us to deliver a broad array of value which contributes to society through our core businesses.

It is also important for us to contribute to society by supporting people and fostering their growth. We established the Hanwa Scholar-

ship Foundation in 1957, providing grant-type scholarships to students who study in Japan and abroad. Going forward, we would like to see increasing numbers of the young people who will support Japanese society to study overseas, and we will continue to provide aid so that they will not give up on their studies for financial reasons and will be able to fully dedicate themselves to scholarship.

Since our founding, we have aimed for growth based on the view that corporate prosperity and the happiness of our employees are two sides of the same coin. Going forward, however, we will also be working to proactively contribute to the stable development of society.

Strengthening our balance sheet and solidifying our foundation for growth

The "first floor" of our Ninth Medium-Term Business Plan is the "En- hancement of management foundation."

A trading company's greatest treasure is its people. We have always viewed the enhancement of our human resources to be a priority issue and, under the theme of "Professional & Global," we have significantly increased our training budget.

We have finally opened the Hanwa Business School, an online corporate university program which has long been in the works. Participants create their own unique avatars and learn in a virtual environ- ment. The school is designed to deliver a broad range of knowledge and is composed of a faculty system, including the Faculty of Literature to learn Hanwa's "DNA;" the Faculty of Foreign Language to acquire

Chinese, English, and other languages; the Faculty of Business Administration to learn the practice of professional, global business adminis- tration; the Faculty of Engineering to enhance IT literacy; and the Faculty of Commerce, which handles subjects such as finance theory. The program enables participants to learn anywhere, anytime, 24 hours a day. Our desire is for this program to expand participants' interests and deepen their learning.

Turning to our DX strategy, this is something we are currently making preparations for at a rapid pace. We acquired DX certification from the Ministry of Economy, Trade and Industry in March 2022 and are planning on putting our new core system into operation in FY2022.

For some time, we have been engaged in optimizing work processes and introducing robotic process automation (RPA) to automate tasks formerly performed manually, but this move will optimize the work of our employees in the workplace even further. The new core system is also designed so that management indices will come out in a more timely manner, enabling management to speed up implementation of management measures.

All employees and management will be engaging in business com- panywide with full recognition of the significance of the introduction of this core system.

With regard to financial affairs, while we have achieved good net sales and ordinary income, we recognize that we have some balance sheet issues.

At the end of December 2021, shareholders' equity was ¥211.5

billion and net DER was 1.4 times. However, after Russia's military invasion of Ukraine in February of this year, the nickel futures market soared on the London Metal Exchange. The result was futures trades requiring long-term guarantee deposits. As a countermeasure, we raised funds from financial institutions with whom we already had agreements. In addition, assets and liabilities related to year-end loss on valuation of hedging transactions increased, but the effect of this on our performance was minimal.

Against this backdrop, at the end of FY2021, our liabilities had increased 133.1% over the end of the previous fiscal year to ¥1,470 billion. Gross interest-bearing liabilities were ¥722.9 billion, with net DER rising to 2.4 times at the end of the consolidated fiscal year under review.

We view this situation as a temporary matter resulting from the situation in Ukraine, but enhancing financial soundness is a serious issue for us and we will be promoting initiatives aimed at the end of FY2022. Amid expanding revenue, we are optimizing stock volumes and revising our cash conversion cycle throughout the entire Company with the aim of improving our business segment cash flow. Going for- ward, we will further leverage our new core system to analyze our financial and revenue structures and enhance profitability.

Our balance sheet reveals the fundamental strengths of our company management. Strengthening our financial base will enable us to be successful and avoid missing opportunities for Company growth and, further, help us to take risks. We believe that strengthening our balance sheet is a necessary measure in order to take the next step forward from our current financial position.

With regard to profits and losses, we expect to satisfactorily achieve our target figures for FY2022. However, social conditions are increasingly unstable, and we must always be prepared and watchful. I personally have extensive experience in the financial field and believe that now is the time to leverage this accumulated expertise. Together with the Board of Directors, Chairman, and Vice Chairman, I will be promoting management which reliably produces results.

Amid increasing resource competition, Hanwa has a conspicuous role to play

The "second floor" of the Ninth Medium-Term Business Plan is "Devel- opment of business strategy," and in regards to this, we are developing our "SOKOKA (Just-in-Time delivery, small lot, processing)" strategy designed to add even greater value to our transactions with business partners. Expanding the strategy area nationwide to include eastern Japan in addition to the western Japan and Chubu regions, we will further enhance our capabilities as a steel trading company.

In order to intensify our SOKOKA strategy, we will continue to promote "M&A plus A (alliances)" where we acquire and tie up with small- to medium-sized companies specializing in small-lot logistics and steel and other metals processing. Currently, the Japanese steel industry is facing double blows in terms of contractions in both domestic demand and exports, resulting in facility consolidations and structural changes. In order to implement our SOKOKA strategy together

with small- to medium-sized companies facing an uncertain future, last year we established a Business Development Implementation Team. We will be stepping away from our previous stance of waiting for companies lacking successors to approach us. Leveraging external information sources such as financial institutions and investment funds, we will proactively approach outstanding companies and expand our range of M&A targets to enter diverse markets which would be difficult for the Company to reach on its own.

Overseas, under the "Create another Hanwa in Southeast Asia" catch- phrase, we are engaged in investment with a focus on the ASEAN union.

We have transplanted business models that have been successful in Japan to Indonesia, Singapore, Thailand, and Vietnam, and are further expanding a local production and local consumption model in the region. In FY2021, the amount of steel we handled globally exceeded 14 million tons, and this figure is expected to further rise in the future, contributing to increased income.

Securing resources is another important role of a trading company. As competition for resources intensifies worldwide, a failure to procure resources also means an inability to sell them and to function as a trading company. We are not a general trading company and are unable to draw on extensive capital, but as an entity which is a major part of the supply chain, we have secured sources to procure resources essential to Japan. More specifically, we have invested in PT DEXIN STEEL INDONESIA, a steel blast furnace mill on the island of Sulawesi, Indonesia. We are also participating in a nickel pig iron, stainless steel smelting and rolling factory project on Sulawesi led by China's Tsing- shan Holding Group, the world's largest stainless steel producer. Taking charge of everything from raw material procurement to product sales, we are fulfilling our roles as a trading company.

There are some things, such as global affairs and raw materials demand, which cannot be grasped from a purely domestic perspec- tive. These become apparent to us, however, through our dialogue with Chinese companies. Chinese manufacturers are highly influential on the economy, and getting firsthand information from them is of great value. In turn, this is an area we will be developing greatly going forward. While avoiding political risks, we will be exploring our own way of working with such companies, such as doing business primarily with Chinese companies which have expanded into Indonesia and other nations abroad.

Creating the future of distinctive resources investment

Per the "third floor" of our Ninth Medium-Term Business Plan-"Gener- ate profits from investment"-we have invested in distinctive resources, and the time is finally approaching for these investments to bear fruit and be harvested.

During our Eighth Medium-Term Business Plan, we invested in In- donesia-based QMB NEW ENERGY MATERIALS, which engages in the integrated production of high-puritynickel-cobalt compounds essential for rechargeable batteries, from ore. A joint venture between Tsing-

shan Holding Group; CATL, the world's largest manufacturer of rechargeable batteries for automobiles; and GEM, a leading recycling company in China; as well as the Company, QMB NEW ENERGY MATERIALS finally began production in FY2022.

Mexico-based Bacanora Lithium's factory for producing high-purity lithium carbonate for lithium-ion batteries is scheduled to start operating in 2023 and is expected to expand sales into Asia.

In South Africa, we are participating in the WATERBERG JV Project to produce nickel and platinum group metals. Jointly investing in the project with partners such as PTM (a Canadian mine development company) and Japan Oil, Gas and Metals National Corporation (JOG- MEC), it is scheduled to begin operating in 2024. We will be in charge of selling the products the project produces.

Per the above, we are extensively involved in battery businesses, from lithium, nickel, cobalt, and other primary materials used in rechargeable batteries; cathode materials and other key components; semi-finished products; and recycled materials; to product reuse. Soci- ety's need for rechargeable batteries will grow even stronger in the future, and last year we established BATTERY Team to serve as a cross-organizational group in charge of rechargeable batteries, from upstream to downstream and even recycling. We will be aiming to contribute to expanding businesses as well as to society.

We knew that these moves would not immediately lead to profit, but we gritted our teeth and continued to make investments. Now, at long last, their fruits are coming into view and, may be deemed a major contributing factor to our business performance going forward.

Preserving Hanwa's DNA while advancing toward our 100th anniversary

Although currently new large-scale investment projects have come to a close, it is necessary for us to continue to sow new seeds. Now is the time for the transition to a decarbonized society. Renewable energy, biomass, scrap, rechargeable batteries, and more-we will examine current conditions from every perspective, reexamine our tactics while engaging in both thorough offense and defense, and create new business opportunities.

While sowing these seeds, it will also be necessary for us to continue to strengthen the financial base that serves as our fundamental strength during the following Tenth Medium-Term Business Plan. Societal instability is rising, making it difficult to predict the future. We view outfitting this company with the resilience to withstand whatever may happen going forward as our next major theme. A sound financial backing will make the Company an even more stable presence.

Working to distribute risk will also be essential in realizing this. We will fully consider where the risks lie in every project and factor these risks into our plans in advance. Even if an individual project does poorly and temporarily slows down operations, this will enable us to survive sufficiently and in turn lead us to the next opportunity.

I worked in the administrative divisions for a long time, and as a result, I believe that I can clearly see the Company's strengths and en-

gage in management from a new and different perspective. I feel that my role is to create a virtuous circle in the Company and push us forward toward the next step.

Demands may change with the times, but there are also parts of the Company that will never change.

In recent years, we have taken on a variety of investment projects and the range of products we handle as well as the breadth of our financial affairs have brought us closer to that of a general trading com- pany. Trade, however, remains our focus. Working hard to mediate between suppliers and business partners and adding value to trades. Pleasing both suppliers and buyers and receiving a reasonable profit in return. This orthodox form of business is Hanwa's DNA, and we have no intention of changing our fundamental blueprint as a trading company.

The Tenth Medium-Term Business Plan starts in the next fiscal year, and we are currently working on its formulation. Employees who joined the Company in 2022, the year of its 75th anniversary, will likely continue to be working for the Company on the day it reaches its 100th anniversary. Accordingly, we must anticipate what society will be like 25 years in the future.

Human resources are a trading company's lifeblood, and it is always important to us to make this a company which is open and in which our employees can work comfortably and without hindrance. I intend to go on frequent walks around the Company, visit Company locations in Japan and around the world, and hear the frank opinions of our employees.

In accordance with our medium- to long-term-based manage- ment, in the current plan period, we further strengthened our financial base by accumulating internal reserves while at the same time paying out annual dividends of ¥100 per share.

In order to satisfy the shareholders who have supported us in the medium- and long-term, we will succeed through confident management and, at the same time, share the perspective of our shareholders and provide thorough explanations of our current situation.

I encourage you to continue to expect Hanwa to grow to be even more robust and sure.

Story Growth

Progress in Value Creation - Contribution to the realization of a sustainable society -

1946 - 19811982 - 2001

2002 - 2021

Present

Story Growth

Hanwa Shokai was founded in December 1946 by three brothers, Jiro Kita, Ryosaku Naide, and Shigeru Kita. In April of the following year, it was reorganized into Hanwa Co., Ltd. Starting with sales of steel materials to the Forestry Agency and the Forestry Bureau, sales of round bars also increased. The Company subsequently strengthened its business foundation by earning the reputation of "Round Bar Hanwa" and expanded its sales channels. The Company was listed on the second section of the Osaka Securities Exchange in 1963. With its improved social creditworthiness and financial strength upon its listing, the Company diversified its operations into petroleum, lumber, non-ferrous metals, and food products busi- nesses, in addition to its steel business, while opening overseas offices in Hong Kong, New York, and Seattle, among other places.

While proactively expanding its operations through enhancement of functions of its steel distribution centers in Japan and initiatives such as making capital participation in overseas steel distribution centers, the Company was said to be one of the most famous companies with zai-tech, but suffered great losses in the aftermath of the bursting of the bubble. In 1994, the newly appointed president of the Company, Mr. Shuji Kita, declared "a complete withdrawal from zai-tech to a focus on our core businesses" and made a start as a new Hanwa. In Japan, we established operating bases in order to expand distribution functions, and overseas, we expanded our steel processing functions mainly in China.

We made a recovery from the loss resulting from zai-tech and implemented dividend payment for the first time in 2002 after eight fiscal years. In 2004, the Fourth Medium-Term Business Plan with an "assertive management" approach was formulated with all-employee participation. In addition, we expanded offices in Japan and overseas, including the establishment of Hanwa Steel Service Ltd. and the expansion of the chromium business in South Africa. In 2011, Hironari Furukawa assumed the position of president and advocated for a "user-oriented trading company." With a view to expanding trading volume with small and mid-sized companies, through "M&A plus A (alliances)," we advanced the "SOKOKA (Just-in-Time delivery, small lot, processing)" strategy and cultivated the markets.

The Ninth Medium-Term Business Plan for the 3-year period from FY2020 to FY2022 was formulated with the theme "Run up to HANWA 2030 - Challenge the unknown beyond the present." In addition, in April 2022, Yoichi Nakagawa assumed the position of president and under the new president, we are promoting initiatives toward sustainable growth.

Enhancement of Corporate Foundation and Social Contribution Environment Society Governance

Ever since our foundation, Hanwa Co., Ltd. has always anticipated what lies ahead and grown by responding to the diverse needs of the users. With our corporate philosophy to become a "distribution specialist," we will continue to satisfy various needs of our users accurately by leveraging our high level of expertise and extensive network and contribute to the realization of a sustainable society through our business.

Contribution to the Realization of a Sustainable Society through Our Business

We aim to contribute to the building of a sustainable recycling community through the promotion of the steel reusing and recycling business.

Osaka Co., Ltd.

We aim to contribute to the building of an

industrial base through a stable supply of metal resources and addressing global warming issues through the distribution of cathode materials for rechargeable batteries.

Through the utilization of the metal recycling knowhow and network and the introduction of facilities that emit less CO2, we will work toward the formation of a recycling-oriented economy with consideration given to response to climate change.

We contribute to sustainable marine

resource circulation in order to distribute

safe and secure food.

We contribute to the realization of a sustainable society through supply of environmentally-friendly energy and plastics and formation of a recycling-oriented society through recycling of waste paper and plastics.

• Lumber ] We aim to contribute to the sustainable development of Japanese forestry and the preservation of abundant forests.

• Machinery ] We are engaged in the introduction of facilities re- lated to renewable energy, whereby contributing to the realization of a sustainable global environment.