REGAL CORPORATION

There is a risk that demand for leather shoes and other handled products may decline due to the ongoing casualization of consumers' work styles and continued frugality driven by rising consumer prices. A decline in demand could lead directly to a decrease in net sales, potentially affecting business performance and financial position. As countermeasures, the Company will strengthen its marketing functions to respond swiftly to needs, optimize demand-supply forecasting through the use of digital data, and promote strategic investment in the strong EC and lifestyle categories.

In a business model that spans planning through sales, securing personnel with specialized skills in each field has become a critical issue. A shortage of personnel could result in the discontinuation of shoemaking technique transmission, decreased customer satisfaction, and lost sales opportunities, potentially adversely affecting business performance. In particular, shoemaking techniques are highly specialized and difficult to replace, creating a risk of medium- to long-term decline in competitiveness. As countermeasures, the Company will strengthen recruitment activities, automate production processes, expand personnel development programs, and improve its personnel systems.

If instability in international circumstances or the strengthening of U.S. tariff policy causes disruptions in logistics or a surge in energy prices, this could result in higher procurement costs for materials and leather shoes, procurement delays, and difficulty passing costs on to selling prices, potentially affecting business performance and financial position. Heightened geopolitical risk is making the impact increasingly difficult to predict. As countermeasures, the Company will promote diversification of procurement routes, improve production efficiency through reorganization of production sites, and build a profit structure resilient to changes in the external environment through the use of digital technology.

Within a complex supply chain involving numerous suppliers both in Japan and overseas, there exist a wide range of risks including deterioration in suppliers' business conditions, natural disasters and infectious diseases, geopolitical risk, human rights and labor issues, and quality control problems, any of which could disrupt stable supply and adversely affect business performance if they occur. Because the supply chain is extensive and diverse, early identification of risks is difficult. As countermeasures, the Company will promote visibility of the overall management conditions and inventory status across the supply chain and diversify procurement routes, striving to build a stable supply system.

Fluctuations in the prices of raw materials, including leather, could raise procurement and manufacturing costs, potentially affecting business performance and financial position. If increases in raw material prices cannot be passed on to selling prices, this creates a direct risk of declining profit margins. As countermeasures, the Company will strengthen its ability to pass on costs through the development of high-value-added products and brand reorganization, and will promote the suppression of unprofitable products, building a profit structure less susceptible to raw material price fluctuations.

With the advancement of DX, the entrenchment of remote work, and the expansion of cloud usage, the threat of cyberattacks and unauthorized access is increasing and becoming more sophisticated worldwide. Should important information, including customer data, be leaked or systems be shut down, this could severely impact business performance and financial position through loss of social credibility, liability for damages, and interruption of business activities. There is also a risk of information leakage due to internal factors. As countermeasures, the Company will thoroughly enforce rules based on its information security management regulations, upgrade its security infrastructure and monitoring systems on both hardware and software fronts, and conduct regular literacy education and training.

Since a certain proportion of products and raw materials are procured through imports, the Company bears the risk of rising procurement costs due to foreign exchange rate fluctuations, and significant exchange rate movements could affect business performance and financial position. While forward exchange contracts are utilized, they do not eliminate all fluctuation risk. As countermeasures, the Company will appropriately manage forward exchange contracts, absorb increases in import costs through the development of high-value-added products, optimize the balance between domestic production sites and overseas procurement, and improve profitability through brand portfolio reorganization.

The Company's handled products are highly susceptible to the effects of climate change, and the recent normalization of extreme heat and mild winters has made demand forecasting based on traditional seasonal cycles increasingly difficult. Unseasonable weather or the occurrence of large-scale natural disasters could adversely affect business performance and financial position. There is a risk that increased inventory of seasonal products left unsold could put pressure on profitability. As countermeasures, the Company will improve the accuracy of demand-supply forecasting and thoroughly manage inventory through the use of digital data, and will promote the expansion and optimization of year-round products resilient to climate change.

The commitment line agreements with financial institutions include financial covenants, and if a significant deterioration in financial condition results in a breach of these covenants, there is a risk that the agreements could be terminated and repayment of borrowings demanded, causing the Company to lose the benefit of the term. In addition, if a decline in creditworthiness or other factors makes it difficult to raise funds in a timely manner on desired terms, this could affect business performance and financial position. As countermeasures, the Company will ensure sufficient liquidity on hand, raise funds considering interest rate levels and market conditions, and maintain good relationships with its financial institution counterparties.