DAIDOH LIMITED

Amid diversifying consumer preferences, the apparel business may be unable to secure earnings due to changes in purchasing behavior, competition with other companies, and the advance of the sharing economy. The Group owns sewing factories for men's suits and women's jackets, as well as apparel material factories, resulting in a structure that is directly susceptible to demand fluctuations. The Group addresses this through product development leveraging the characteristics of each brand and optimization of sales channels, but it is difficult to completely eliminate the risk.

Sales of products and merchandise handled in the apparel business are susceptible to fluctuations due to weather conditions, creating a risk of sales decline from unfavorable weather. In addition, the occurrence of natural disasters or infectious diseases could force retail stores and the commercial facilities held in Odawara to shorten business hours or close temporarily. The Group addresses this by diversifying the products handled and diversifying sales channels, but complete avoidance is difficult since these are external environmental factors.

The Group has consolidated subsidiaries in the People's Republic of China and Italy and conducts business activities there, and the occurrence of natural disasters, terrorism, war, political upheaval, or infectious diseases in these locations could make it difficult to continue operations. In addition, there are risks from fluctuations in economic conditions and exchange rates, which could affect business results and financial condition. As geopolitical risk and currency risk act in combination, this constitutes an important risk factor for the stability of earnings across the Group as a whole.

Losses may arise from sudden changes in the business condition of business partners, which could affect business results and financial condition. The Group has strengthened its system for understanding the business condition of partners at the start of transactions and periodically confirming their status, but there may be cases where the response cannot keep pace with sudden changes. Bankruptcy or credit deterioration of business partners carries the risk of triggering chain effects such as uncollectible accounts receivable or disruption of procurement.

If a product accident involving product liability occurs, there is a risk of decline in social trust and brand image, as well as cost burdens. The Group has launched the "Daido Engagement" initiative and, together with suppliers, is promoting the establishment of systems to assure product safety and quality, but complete elimination of the risk is difficult. Damage to brand image directly affects sales in the apparel business, making this an important risk to the continuity of operations.

Unauthorized access to information systems leading to information leaks and similar incidents could result in a decline in social trust and cost burdens. The Group is working to strengthen the security of its information systems, ensure company-wide compliance with laws and standards related to personal information protection, and continuously manage and improve its personal information protection system. Against a backdrop of increasingly sophisticated and diverse cyberattacks, complete defense cannot be guaranteed even with countermeasures in place.

If problems arise from misconduct or illegal acts, this could affect business results and financial condition through a decline in social trust and brand image and cost burdens such as damages. The Group has established a Compliance Committee and is working on formulating corporate codes of conduct, raising awareness among officers and employees, and developing internal control systems, but states that compliance risks cannot be completely avoided. Compliance with laws and social norms remains an ongoing challenge across the Group's wide-ranging business activities, including the apparel business.

At the end of the previous consolidated fiscal year, the Group recorded a significant operating loss, ordinary loss, and net loss attributable to owners of the parent, giving rise to events that raised significant doubt about its ability to continue as a going concern. Based on the first medium-term management plan, the Group pursued various measures including restructuring of its business portfolio through M&A, and as a result of improving its earnings structure, it recorded operating income, ordinary income, and net income attributable to owners of the parent in the current consolidated fiscal year. It has been determined that the events and conditions that raised significant doubt about the going concern assumption were resolved as of the end of the current consolidated fiscal year, but continued attention to the stability of the earnings base remains necessary.