SHIKIBO LTD.

The Group operates diversified businesses including the textile business, industrial materials business, functional materials business, and real estate/services business. Economic downturns or market fluctuations resulting from sudden changes in global economic conditions may affect the Group's financial position, business performance, and cash flows. While the Group strives to respond accurately to market changes and maintain and expand its competitiveness, there are limits to its ability to cope with abrupt changes in the external environment.

The Group uses synthetic fibers as primary and secondary raw materials, and petrochemical products such as heavy fuel oil for fuel. Sharp fluctuations in crude oil prices or procurement difficulties caused by natural disasters and other factors may affect the Group's financial position, business performance, and cash flows. Stability in raw material procurement is fundamental to business continuity, and increases in procurement costs directly compress profitability.

The Group imports raw materials and products from overseas, and while it enters into forward exchange contracts to hedge foreign exchange fluctuation risk, it is impossible to completely eliminate the impact. In addition, the translation of financial statement items of overseas subsidiaries into yen is also affected by exchange rate fluctuations, and significant currency movements may affect the Group's financial position, business performance, and cash flows.

The Group procures funds through interest-bearing debt, and while it works to reduce interest rate fluctuation risk on borrowings from financial institutions through interest rate swap transactions, sudden changes in the interest rate market may affect the Group's financial position, business performance, and cash flows. The Group is also working to reduce interest-bearing debt, but there is a risk that funding costs will increase in a rising interest rate environment.

The Group holds tangible fixed assets such as land and production facilities, as well as intangible fixed assets. If the Group is forced to recognize impairment losses due to declines in the fair value of assets, significant changes in the business environment, or deteriorating profitability, this may affect its financial position and business performance. In particular, amid ongoing structural changes in the textile business and other segments, the risk of declining profitability of held assets requires continued close monitoring.

The Group is subject to various laws and regulations both in Japan and overseas, and has established and operates a group-wide compliance system through the development of codes of conduct, conduct guidelines and standards, the establishment of a compliance committee, and regular education and training. Nevertheless, changes in laws and regulations may affect the Group's financial position and business performance.

The Group holds confidential business information, customer information, personal information, and other data, and works to establish information handling rules and strengthen information security. However, if business operations are affected by virus infections, cyberattacks, or other increasingly sophisticated external threats, this could result in a loss of social credibility and affect the Group's financial position and business performance.

In addition to the increase in natural disasters, policies, regulations, and the introduction of carbon taxes related to greenhouse gas emissions, including CO₂, may affect the Group's financial position, business performance, and cash flows. On the other hand, the Group also expects an increase in business opportunities from growing demand for technologies, products, and services that contribute to energy conservation and greenhouse gas emission reductions, and is disclosing information in line with the TCFD recommendation framework.

The Group has business sites and plants in Japan and overseas, and has formulated a BCP (Business Continuity Plan). However, large-scale natural disasters such as earthquakes and floods, or the occurrence of a pandemic, may cause not only direct damage to employees and facilities but also indirect damage such as disruption to raw material procurement and distribution, potentially affecting the Group's financial position, business performance, and cash flows. In addition, human and material damage from accidents and industrial injuries arising from business activities may also affect the Group's financial results.

The Group conducts production and sales activities in Indonesia, China, Vietnam, and other countries, and exports fabrics for ethnic clothing to the Middle East. Geopolitical risks are intensifying, including heightened tensions in the Middle East, the prolonged Russian invasion of Ukraine, and tensions surrounding China and Taiwan. Should these factors lead to surging raw material and energy prices, disruptions to logistics networks, or a decline in demand, the Group's financial position, business performance, and cash flows may be affected.