SOTOH CO.,LTD.

The Dyeing & Finishing Business, which accounts for 53.1% of total net sales, is a core business operating as a contract processor performing finishing work on customers' products. Because customers adjust production volumes according to sales and inventory conditions in end markets such as apparel and department stores, the Group's production volume may be significantly affected. While the Group seeks to secure stable orders through strengthened collaboration with customers and information gathering, the business structure remains highly dependent on the external environment.

Customers of the Dyeing & Finishing Business are concentrated in the Bishu district of western Aichi Prefecture, a textile-producing region centered on wool materials, and order volumes tend to be significantly affected by changes in fashion trends for such materials. End-consumer preferences can change rapidly, creating a risk of sudden demand decline. The Group seeks to expand orders from other producing regions by developing and proposing differentiated processing that responds to material diversification, but delayed response to trend changes could affect operating results.

The Dyeing & Finishing Business is heavily dependent on petrochemical products for raw materials and primarily uses gas as an energy source, meaning that increases in crude oil and gas prices directly translate into higher costs. The Group addresses this through pass-through to processing prices, productivity improvements, and energy-saving measures, but if prices rise more than expected, operating results could be adversely affected. Fluctuations in energy costs have a significant impact on the earnings structure, making this an item requiring continuous monitoring.

The Real Estate Business primarily involves leasing to distribution companies, an industry that continues to face intensifying competition. This has led to strong downward pressure on rents, and there is also a possibility that tenants may decide to close unprofitable stores. Should these risks materialize, revenue from the Real Estate Business would decline, affecting the Group's overall operating results.

In the event of an emergency such as the spread of COVID-19, business operations across all segments could become difficult. The Group intends to take measures to minimize business risk, such as communicating response policies and changing work arrangements, but depending on the scale and duration of the emergency, operating results and other outcomes could be significantly affected. This is a risk that tests the effectiveness of the Group's Business Continuity Plan (BCP).

Because the Dyeing & Finishing Business and the Product Sales Business are centered on autumn/winter items made mainly of wool, sales tend to concentrate in the first half of the fiscal year (the autumn/winter material production period), resulting in a seasonally skewed business structure. The Group seeks to level production by strengthening composite materials and expanding into business areas such as sports, uniforms, and innerwear, but earnings in the second half tend to be weak, which may affect full-year operating results.

Because customers and production facilities of the Dyeing & Finishing Business are concentrated in the Bishu district of western Aichi Prefecture, a large-scale disaster such as an earthquake or typhoon in the area could reduce work volume, damage production equipment, and disrupt logistics functions, resulting in a risk of production shutdowns. Given the high degree of geographic concentration, a single disaster could impact the entire business, affecting both operating results and financial position.

Raw materials for the Dyeing & Finishing Business and the Product Sales Business are mainly produced overseas, centered on China, and changes in local environmental regulations or political conditions, as well as unexpected country risks, could worsen raw material procurement conditions or cause price spikes. The Product Sales Business, which aims for global expansion, also faces risks related to local production, and heightened geopolitical risk could affect operating results.

The Dyeing & Finishing Business uses chemicals and other substances that may affect the environment, and is subject to various legal regulations both in Japan and overseas. If environmental regulations are tightened domestically or internationally, restricting the use of certain chemicals, the Group may incur costs from switching to alternative substances or changing production processes, which could affect operating results. The Group addresses this through strict legal compliance and procurement management, but must continue to closely monitor trends in regulatory tightening.

Much of the Group's financial assets consist of stocks and investment trusts, and operating results and financial position may be affected by trends in stock prices, interest rates, and exchange rates. In addition, the Dyeing & Finishing Business and the Product Sales Business face competition from overseas products and depend on imported raw materials, meaning that exchange rate fluctuations directly affect cost competitiveness. The Group reviews the appropriateness of holding individual securities annually and addresses these risks through strengthening cost competitiveness and developing differentiated processing, but the risk of sudden changes in market conditions remains.