HOKUTO CORPORATION

All mushrooms of the Group are cultivated and managed within factories, but if a natural disaster such as an earthquake or a sudden accident occurs, there is a risk that production facilities will be damaged and supply will be halted. Although the Group strives for thorough hygiene management and stable cultivation, the concentrated production system means that the impact could be significant if a single site is affected by a disaster.

As the Group's primary business base is within Japan, there is a risk that economic deterioration or changes in consumption patterns accompanying population decline and aging could lead to a shrinking market. If the market contracts, this could result in decreased sales volume and lower unit prices, potentially adversely affecting the Group's financial position and business results.

Mushroom prices are partly linked to market prices for open-field vegetables, and fluctuations in vegetable market prices due to climate change affect mushroom prices. In particular, if warm winters continue during the autumn-winter peak demand season, there is a risk that demand growth will stagnate and unit prices will fall, potentially increasing seasonal downward pressure on business performance.

Demand for mushrooms tends to be notably weak in spring and summer and to expand in autumn and winter, and operating profit for FY2026 (ending March 2026) fluctuates significantly by quarter: ¥176 million in Q1, negative ¥118 million in Q2, ¥4,322 million in Q3, and ¥2,650 million in Q4. There is a risk that judging the full-year outlook based on results from a specific quarter alone would be difficult, complicating investors' performance assessments.

There are several strong competitors in the domestic market, and there is a risk that the Group's market advantage could be undermined by competitors increasing supply volumes, implementing discount strategies, or strengthening advertising. In overseas operations as well, there is competition from Asian companies, and price declines resulting from increased supply volumes could pressure profitability. The Group is pursuing differentiation through new product launches and brand strengthening, but the effectiveness of these measures may be limited depending on changes in the competitive environment.

Amid growing consumer interest in food safety, security, and health benefits, if unexpected issues arise regarding hygiene or raw materials used in the production, manufacturing, or sales processes, there is a risk of product recalls or brand damage. Although the Group has established a thorough management system, such issues, if they occur, could have a material impact on the Group's financial position and business results.

The Group has established local subsidiaries in the United States, Taiwan, and Malaysia for production and sales, but there is a risk that changes in local political and economic conditions, revisions to laws and tax systems, conflicts such as terrorism, or public health issues could make it difficult to continue operations. Amid an environment of heightened geopolitical risk, uncertainty is increasing regarding business operations spanning multiple countries.

Imported raw materials such as corn cob meal are affected by exchange rate fluctuations, while energy costs such as heavy oil, electricity, and gas are influenced by crude oil price trends. If increases in energy prices cannot be passed on to selling prices, rising equipment costs for air conditioning, lighting, and other facilities in the mushroom production process could directly pressure profits, potentially adversely affecting the Group's financial position and business results.

Securing and developing excellent human resources is an important challenge for the Group's growth, but there is a risk that intensifying competition for recruitment could increase costs such as salaries and benefits, leading to higher expenses. If the Group is unable to secure and develop human resources as planned, this could hinder business expansion and improvements in production efficiency, potentially affecting the Group's financial position and business results.

If the government or local authorities implement requests to refrain from going out or restrictions on business operations due to the spread of a pandemic-type infectious disease, there is a risk that normal business operations could be disrupted and product supply delayed. This impact could occur not only domestically but also at overseas subsidiaries in the United States, Taiwan, and Malaysia, and the Group continues to implement routine infection prevention measures such as mask-wearing and disinfection.