SAKATA SEED CORPORATION

Natural disasters such as storms and heavy rains, as well as poor weather conditions, can affect growers' agricultural activities and risk causing a decline in seed and seedling sales. The Company recognizes that abnormal weather events are trending upward globally, and while it is expanding sales regions to over 170 countries worldwide and advancing the development of environmentally resilient varieties, poor weather in various regions could still lead to sluggish sales.

Since the production of commercial seeds is heavily affected by weather conditions, there is a risk that poor weather could prevent securing sufficient quality and quantity, as well as a risk of rising production costs. The Company diversifies risk through production dispersion across 19 countries worldwide, outsourcing to multiple growers, and maintaining safety stock; however, if a major weather change or natural disaster occurs in a key production region, resulting stock shortages and sales declines, or a significant rise in production costs, could adversely affect business performance.

Because it takes more than 10 years from setting breeding objectives to commercialization, the Company faces compound risks including investment cost burdens, feasibility of development, changes in product needs, competition in development with other companies, and lower entry barriers due to the spread of new breeding technologies. While the Company addresses these through expanding breeding engineering capabilities, collaboration with external research institutions, and reward systems and team structures for developers, sudden changes in demand or the emergence of strong competing varieties from other companies could adversely affect business performance.

There is a risk that the outflow of breeding researchers (breeders) to outside organizations could hinder the development of the varieties they are responsible for, and a risk that the leakage of genetic resources could lead to counterfeit products circulating and infringement of intellectual property. The Company protects intellectual property rights through variety registration under the Plant Variety Protection and Seed Act and through patents, but if a leakage of genetic resources were to occur, it could result in a loss of competitive advantage and adversely affect business performance.

If the value of held assets such as land and securities declines sharply, it could adversely affect business performance. The Company has established management systems including periodic confirmation of the status of real estate and internal rules regarding strategic shareholdings, but risks remain that cannot be fully addressed in the event of sudden changes in market conditions.

The Company holds a certain amount of seed inventory to fulfill its responsibility for stable supply, but there is a risk that deterioration in seed quality or changes in product demand could increase disposal and valuation losses on inventory. Although the Company periodically reviews valuations based on quality and sales trends, if production or sales results deviate significantly from plans, business performance could be adversely affected.

Because seeds and seedlings are "living things," there is a risk of unforeseen circumstances affecting quality levels and uniformity, as well as risks arising from environmental and production technology factors unrelated to the seeds themselves. The Company has established response systems including product checks by the Quality Control Department and the establishment of a customer consultation office, but if a quality issue occurs, it could lead to a loss of customer trust and adversely affect business performance.

The Company operates in 23 countries including Japan, and is inherently exposed to risks such as unexpected changes in laws and regulations, political and economic turmoil, terrorism and conflict, natural disasters, and information leaks. While the Company is strengthening early information gathering from each country and its rapid decision-making systems, if a risk event occurs in a specific region, it could result in difficulty continuing operations, a significant decline in demand, or withdrawal from seed production, adversely affecting business performance.

Given production and sales activities conducted in various overseas locations, the yen conversion of financial statements denominated in local currencies, as well as import/export transactions of raw materials and products, are subject to the effects of exchange rate fluctuations. The Company works to mitigate this risk through the use of forward foreign exchange contracts and currency options, but if exchange rates fluctuate sharply beyond expectations, it could adversely affect business performance.

The Company extends credit, including accounts receivable and advance payments, to customers and suppliers both in Japan and overseas, and if a business partner's financial condition deteriorates or it goes bankrupt, business performance could be adversely affected. The Company implements credit risk management measures such as periodic credit checks, setting transaction limits, and recording allowances for doubtful accounts, but the risk of unexpected bankruptcy of business partners cannot be eliminated.