KANEKO SEEDS CO., LTD.

Because seeds are living organisms, there is a risk of quality deterioration or disease occurring due to weather and other unforeseen factors. Although the Group has enhanced its seed collection technology guidance system and seed inspection system and screens out and discards seeds that do not meet quality standards, there is no guarantee that it can always supply seeds that meet the purity, germination rate, and soundness required by users, and this could impede sales and adversely affect business performance.

Most of the seed production for vegetables, forage crops, and flowers is entrusted to contractors in Japan and overseas and involves seed collection in outdoor farmland, so production volume and quality are heavily influenced by natural conditions such as weather. As countermeasures, the Group secures long-term inventory and diversifies seed collection by utilizing different regions and climates around the world, but poor harvests caused by abnormal weather could lead to seed shortages that impede sales.

The development period for seeds and other products can exceed 10 years, and significantly shortening this period is not easy. Even with long-term development efforts, the expected results are not always obtained, and it is essential to continuously secure excellent personnel, useful genetic resources, and information on new technologies. If development results are not achieved, this could adversely affect the Group's business performance.

Realizing the Group's strategy based on the management principle of "high technology and internationalization" requires personnel with advanced R&D capabilities who can perform their duties in diverse cultures and difficult environments. Although the Group is enhancing recruitment activities and strengthening personnel development after joining the company, if it is unable to sufficiently secure and develop appropriate personnel, this could affect long-term business development and business performance.

Domestic agriculture faces a very difficult situation due to structural problems including sluggish food consumption caused by population decline and the falling birthrate combined with an aging population, and the aging of agricultural workers. Since many of the Group's businesses are related to domestic agriculture, they are directly susceptible to the effects of this structural decline. The Group aims to expand its business scale through R&D of new products and technologies and sales activities that capture customer needs, but market contraction pressure may continue.

The Group is subject to a wide range of legal regulations, including the Plant Variety Protection and Seed Act, the Plant Protection Act, the Agricultural Chemicals Regulation Act, the Poisonous and Deleterious Substances Control Act, and the Construction Business Act, and is working to strengthen compliance. If the Group is unable to comply with laws and regulations, or if there are changes in legal regulations, business activities could be restricted, potentially affecting business performance.

Since many of the Group's seed production contractors are overseas businesses, and the Group also exports vegetable seeds among others, it is exposed to foreign exchange fluctuation risks such as rising procurement costs from yen depreciation and reduced sales amounts from yen appreciation, as well as compound risks including political and economic instability, conflicts, coups, and regime changes, rising logistics costs such as shipping, and unexpected legal and institutional changes, abolitions, or reforms. Should these risks materialize, they could adversely affect the Group's business performance.

If a large-scale natural disaster or accident makes agricultural production impossible or difficult, there is a risk that sales of seeds and seedlings, agrochemicals, agricultural materials, and gardening supplies will decrease. In addition, if an infectious disease such as COVID-19 spreads widely among employees, business operations could be significantly disrupted. Should these events occur, they could affect the Group's business performance.

Due to the business custom of Bon and year-end settlement (payments in August and December) that remains in the agricultural industry, payment terms from retailers and others can become extended, resulting in cases where the amount of receivables becomes large relative to the transaction amount. Although the Group manages due dates and balances based on its transaction management regulations and monitors the financial condition of business partners, collection risk may materialize in some cases.

In direct shipment transactions, which account for more than 40% of total net sales (mainly in the Facility Materials Business and Agricultural Materials Business), sales are recorded based on shipment information from suppliers, making it difficult to grasp the product shipment date in a timely manner, creating a risk of misallocating sales to the wrong period. As a countermeasure, the Group requests suppliers to promptly send supporting documents and checks shipment status near the fiscal period end, but this risk remains as an internal control risk.