THE JAPAN WOOL TEXTILE CO., LTD.

Some products in the apparel textiles, industrial materials, and industrial machinery businesses are highly dependent on sales to specific business partners. If such a partner experiences a deterioration in business performance, withdraws from business, undertakes large-scale inventory or production adjustments, or demands significant price reductions, this could have a material impact on the Group's operating results and financial position, including a decline in sales. In addition, in the event of a business partner's bankruptcy due to an economic downturn or other factors, there is a risk that bad debt losses could significantly exceed the allowance for doubtful accounts. As countermeasures, the Group is strengthening sales capabilities, expanding sales channels, and pursuing business diversification, while also implementing credit management systems that set transaction limits by counterparty and transferring risk through trade credit insurance and similar measures.

In the process of pursuing sustainable growth and improved profitability, the Group may implement business restructuring or structural improvements as needed. In such cases, increased business structural improvement expenses could have a material impact on operating results and financial position. The Group closely monitors business conditions and market trends, and strives to implement restructuring and structural improvements at appropriate times.

The Group holds marketable securities primarily related to business partners, and a significant decline in stock prices could result in a decrease in unrealized gains/losses on other securities and losses on sales, as well as a decline in pension assets and an increase in retirement benefit expenses (through amortization of actuarial differences). In addition, since much of the raw material for the textile business is imported from overseas, significant fluctuations in exchange rates could have a material impact on operating results and financial position. In response, the appropriateness of holding each stock is reviewed by the Board of Directors on an issue-by-issue basis, and foreign exchange risk is hedged through forward contracts and similar measures.

If a serious product defect occurs, this could result in substantial damage compensation payments and loss of credibility, which could have a material impact on operating results and financial position. While the Group carries product liability insurance, there is no guarantee that it will sufficiently cover the final amount of compensation. The Group works to prevent the occurrence of defects by strengthening its quality control system in accordance with prescribed quality control standards.

The prices of raw materials used in major products of the textile business are significantly affected by environmental factors such as international market conditions, weather, and exchange rates, which could have a material impact on operating results and financial position. The Group strives for stable procurement through measures such as multiple sourcing and reviewing procurement routes via global sourcing.

The Group holds production bases overseas, primarily in the textile business, which entails inherent country risks such as unexpected changes in laws and regulations, adverse political factors, and social unrest. If such events occur, they could significantly disrupt production activities and have a material impact on operating results and financial position. The Group seeks to mitigate this risk by maintaining close communication with overseas subsidiaries to understand local conditions and by utilizing advice from local experts.

If a large-scale earthquake, storm or flood damage, snow damage, or other natural disaster, or a fire occurs at domestic or overseas plants, this could significantly disrupt production activities. In addition, if a serious infectious disease such as COVID-19 occurs or spreads and becomes prolonged or severe, this could have a material impact on operating results and financial position due to deteriorating market conditions, disruption of domestic and overseas supply chains, and stagnation of business activities. The Group addresses this through preventive measures, the development of emergency manuals, regular drills, and the use of telework and web conferencing as infectious disease countermeasures.

As the Group continuously makes capital investments and pursues M&A, a decline in business profitability due to deteriorating business conditions or intensifying competition in each market could result in the recognition of impairment losses on property, plant and equipment, goodwill, and other assets, which could have a material impact on operating results and financial position. The Group aims to enhance customer satisfaction by providing high value-added products and services while closely monitoring business conditions in each market, and considers investment efficiency and payback periods when making new capital investments and M&A investments.

If unexpected events such as cyberattacks, unauthorized access, or large-scale power outages cause system outages, destruction of important data, or information leaks affecting business information managed on various core systems and information systems, this could affect financial position and operating results. The Group takes measures such as focusing on stable system operation and security measures, appropriate server management and information backup, and enrollment in cybersecurity insurance.