MATSUOKA CORPORATION

Of consolidated net sales for FY2026 (ending March 2026), direct sales to the Fast Retailing group account for approximately 30%, and indirect sales through the Toray group and others account for approximately 40%, meaning that roughly 70% of net sales are concentrated on this group. If changes occur in the production strategy or order trends of major customers, this could have a material impact on the Company's financial position and operating results. As a countermeasure, the Company is continuously considering expanding the items produced and brands handled, as well as developing new business partners and sales channels.

The apparel products handled are susceptible to changes in fashion trends, climate change, and shifts in consumer spending due to economic conditions, which could affect business performance through a decrease in order volume from customers. The Company seeks to reduce the risk of declining orders by producing a wide range of products, from fashion apparel to working wear. It has also established a system to respond to changes in customer needs by flexibly and swiftly adjusting production plants and timing.

At overseas production bases in ASEAN countries and elsewhere, the materialization of geopolitical risk, changes in international conditions, changes in laws and regulations, and stagnation in the employment and development of local management and staff could disrupt production activities and affect the Company's financial position and operating results. The Company is working to diversify production bases across multiple countries to establish a supply chain capable of flexible response, while cooperating with external experts to establish a system for prompt response in the event of a risk occurrence.

Since most products are imported from overseas production plants, sharp fluctuations in the exchange rate of the settlement currency against the currencies of various countries and regions could adversely affect the performance of each business. In addition, since the group as a whole holds financial assets in a variety of currencies, there is a risk that financial gains and losses could fluctuate significantly due to fluctuations in the yen, the functional currency. The Company seeks to mitigate this risk by entering into individual contracts that do not bear foreign exchange risk with some business partners and by executing forward foreign exchange contracts.

If natural disasters such as earthquakes and storm/flood damage or the spread of infectious diseases disrupt production activities, including overseas, or reduce order volume from customers, this could affect the Company's financial position and operating results. In addition to formulating risk management regulations and establishing emergency contact systems, the Company has established a system to reduce risk through production adjustment and alternative production among its own plants. It is also considering expanding production bases to regions outside Asia.

If important confidential information related to business management is leaked, this could affect the Company's financial position and operating results through a decline in sales due to loss of trust or the incurrence of expenses due to damage compensation. The Company has established information management regulations and thoroughly communicates them through employee training, while also maintaining a system to update system security measures as needed to guard against external hacking and other threats.

The management team, including President, CEO and Representative Director Noriyuki Matsuoka, plays an important role in each area of responsibility, and if these officers become unable to perform their duties or if successors cannot be secured, this could adversely affect business performance. The Company reduces dependence on specific individuals by establishing a management execution system in which teams led by executive directors oversee each division, while also maintaining a system for actively recruiting and developing management personnel capable of working globally.

If human rights violations occur within the Company's group or among its business partners, this could lead to a loss of trust from customers and business partners, affecting performance through a decrease in order volume and other factors. The Sustainability Committee is positioned as an advisory and oversight body on human rights matters, and the Company has established a system for preventing human rights violations and providing remedial measures through human rights training, operation of a reporting hotline, and human rights due diligence.

If profitability declines due to changes in the business environment or other factors, the Company may need to record impairment losses on tangible fixed assets such as production equipment held overseas and intangible fixed assets such as right-of-use assets. The Company continuously investigates the profitability and recoverability of asset groups and appropriately handles the accounting treatment of unprofitable asset groups by identifying signs of impairment in a timely manner. Even after applying impairment, the Company works to identify the causes of declining profitability and to formulate and implement fundamental profitability improvement plans.