YAGI & CO.,LTD.

Insufficient environmental consideration in the textile and fashion supply chain, human rights violations (labor environment issues), and inadequate response to clothing disposal issues carry the risk of a significant decline in corporate image and brand value. Loss of stakeholder trust or termination of business relationships could have a material impact on operating results, financial position, and sustainable growth. As countermeasures, the company promotes due diligence for suppliers under the Sustainability Committee, expansion of sustainable material proposals, and initiatives for resource circulation.

There is a risk that brand value could be damaged by the rapid spread of misinformation or rumors via SNS and mass media, or by criticism regarding ESG and governance. If inconsistencies between internal/external statements and published materials are exposed, this could have a significant impact on sales activities, recruitment activities, and stock price. The company is centered on the Risk Management Committee to develop and review crisis response manuals, and strives to establish an initial response system for the early stages of an incident.

Intentional threats such as targeted attacks, malware infection, internal misconduct, and inappropriate use of generative AI, accidental threats such as PC theft and operational errors, and environmental threats such as IT system outages due to natural disasters are anticipated. If these occur, they could cause business disruption or reduced operational efficiency, potentially impacting operating results and financial position. The company has implemented multi-layered countermeasures including 24/7/365 monitoring through XDR deployment, data encryption and backup systems, and the formulation of generative AI guidelines, but there remains a possibility that highly sophisticated cyberattacks cannot be completely prevented.

In investments and loans related to M&A and new businesses, if significant changes in the market or competitive environment or failure to achieve plans result in delayed or impossible recovery of invested funds, this could impact operating results and financial position through the recognition of impairment losses or provisions for doubtful accounts. Uncertainty cannot be eliminated even with thorough prior investigation. The company strives to reduce risk and strengthen governance through an investment decision-making system by specialized departments, utilization of advice from external institutions, formulation of withdrawal criteria, and review of investment projects.

In extending credit to a diverse range of business partners both domestically and internationally, there is a risk that deterioration in the credit standing or bankruptcy of business partners could occur against a backdrop of drastic changes in the business environment and changes in financial institutions' lending stance following the end of the COVID-19 pandemic. Increased transactions with diverse industries beyond the textile industry are expanding this risk. The company addresses this through strict credit limit and credit rating settings based on credit management regulations, monitoring through regular visits, and continued implementation of credit training sessions.

In the event of a natural disaster such as an earthquake or storm/flood damage, a pandemic, or an emergency such as a large-scale international conflict or terrorism, in addition to direct damage to employees and business sites, there is a possibility that significant problems could arise in the production, supply, and sales systems for products due to the suspension of social infrastructure or disruption of the supply chain. The company has built a business continuity system through seismic reinforcement of key business sites, introduction of a two-headquarters system, establishment of a backup system for important data, and establishment of systems for confirming employee safety and communication.

As raw material procurement and apparel product production are primarily conducted in China and Southeast Asia, there is a risk that changes in local policies and laws, terrorism, war, pandemics, and other factors could restrict production activities and transportation. In addition, disruption of logistics networks and sharp increases in freight rates due to geopolitical circumstances, as well as rapid yen depreciation and rising crude oil prices, could significantly increase costs. The company addresses this through diversification of production bases across multiple countries and regions, diversification of logistics networks and securing of alternative routes, and price adjustment negotiations with business partners.

Procurement costs could rise significantly due to rapid exchange rate fluctuations, soaring raw material prices, rising processing fees due to a decrease in the domestic workforce, and soaring domestic and international logistics costs. If the cost increase cannot be passed on to sales prices, this could lead to reduced profit margins and lost business opportunities, and rapid changes in the production environment prioritizing cost reduction carry the risk of quality deterioration and claims. The company addresses this by exploring new excellent production environments domestically and internationally, improving efficiency through selection and concentration, and concluding forward exchange contracts based on actual demand after procurement agreements are finalized.

Against the backdrop of a declining working-age population due to the falling birthrate and aging population, and intensifying competition for talent, there is a possibility that the recruitment of personnel with the necessary skills and the development of next-generation leaders may not proceed as planned. Delays in improving working conditions and the work environment could lead to decreased employee engagement and increased turnover rates, potentially affecting business performance and continuity. The company addresses this through the introduction of new recruitment methods, expansion of career-track hiring, and expansion of the re-employment system after retirement age, in addition to the use of engagement surveys, health management, and promotion of work-life balance.

In handling a wide variety of products such as raw materials, fabrics, and apparel products, if demand declines significantly due to economic recession, deteriorating consumer sentiment, unusual weather, or changes in trends, this could impact operating results and financial position through the occurrence of excess inventory, losses from clearance sales, and recognition of inventory valuation losses. The company addresses this through early identification of slow-moving inventory and valuation loss risk via monthly inventory trend review meetings, establishment of a flexible supply system, and confirmation of the effectiveness of the inventory management system through regular internal audits.