HOB Co.,Ltd.

Strawberry fruit production is conducted inside vinyl greenhouses, but harvest volumes fluctuate due to weather conditions such as extreme heat, cool summers, insufficient sunlight, and typhoons, which may affect business performance. As countermeasures, the Company has expanded production regions from Hokkaido to the Tohoku region, and has thoroughly implemented accumulation of cultivation techniques and know-how as well as cultivation guidance to producing farmers, but the impact of adverse weather cannot be completely avoided. In the consolidated fiscal year under review, net sales of strawberry fruit were ¥1,963,658 thousand (81.4% of total sales composition), making it the core business, and thus the performance impact of harvest volume fluctuations is significant.

In the consolidated fiscal year under review (fiscal year ended June 2025), strawberry fruit accounted for an extremely high 81.4% of net sales of ¥2,412,711 thousand, indicating a high degree of dependence on a specific product category. Should changes occur in harvest volumes due to weather, declines in selling prices, or shifts in consumer preferences, this could have a direct and significant impact on management strategy and business performance. Net sales have been on a declining trend, from ¥3,039,041 thousand in the 35th fiscal year to ¥2,412,711 thousand in the 39th fiscal year, and the dependence risk is becoming increasingly apparent.

Sales amounts to the top three customers for Strawberry & Fresh Produce (Chateraise Co., Ltd. 18.1%, Mitsui Bussan Ryutsu Group Co., Ltd. 12.2%, and Towa Bussan Co., Ltd. 11.0%) accounted for 41.2% of sales in the consolidated fiscal year under review, indicating a high degree of dependence on specific business partners. Changes in the sales, pricing policies, or product strategies of these business partners, or changes in the trading relationships, could affect business performance. Although the Company has expanded its customer base to approximately 308 companies, concentration in the top three customers remains at a high level.

During the forcing-culture season (from around December to around May), purchase and selling prices of strawberry fruit are determined based on market prices such as those at the Tokyo Metropolitan Central Wholesale Market's Ota Market, so fluctuations in market prices directly affect net sales and profit. As an actual example, the market price of a pack of large-sized Tochiotome strawberries, which was ¥1,200 during the Christmas season in December 2024, fell to ¥450 by January 2025, illustrating significant price fluctuations occurring over a short period. During the summer and autumn season, prices are determined through negotiations with confectionery manufacturers and others, so the impact of market prices is limited, but price fluctuation risk during the forcing-culture season is difficult to avoid.

Based on the "Cultivation Contract" with producing farmers, the Company is obligated to purchase the entire volume of fruit meeting its specifications, so if there is an imbalance in the grade or timing of harvested fruit due to weather conditions or other factors, the Company may end up holding inventory that cannot be fully sold, resulting in fruit disposal that could affect business performance. The Company takes measures such as providing early information to business partners such as confectionery manufacturers and requesting changes in specifications used, but disposal losses cannot be completely avoided when the imbalance is significant. Since the Company's proprietary varietal fruit is mainly used for cake toppings, the grading standards are strict, making it structurally difficult to secure alternative sales channels for off-grade products.

Production of the Company's proprietary varietal seedlings requires approximately three years from tissue culture, so production is conducted on a forecast basis according to seedling sales plans; depending on the timing of revisions to sales plans, production adjustments may not be made in time, resulting in the disposal of excess seedlings that could affect business performance. The Company reviews seedling sales plans in a timely manner to adjust production, but the long lead time imposes structural limits on the ability to respond to plan changes. Net sales of the Seedling Business have been on a declining trend, from ¥93,042 thousand in the 37th fiscal year to ¥52,124 thousand in the consolidated fiscal year under review, making improved accuracy of demand forecasting an ongoing challenge.

Prefectural governments and others are also advancing the development of everbearing strawberry varieties, and if new, superior everbearing strawberry varieties are developed in the future, this could affect the Company's business performance. The Company holds proprietary varieties such as "Pecheka Ever" and "Pecheka Honoka" and has exclusive utilization rights under breeder's rights, but since variety development requires a long period of 5 to 10 years, the Company may find it difficult to respond quickly to the emergence of competing varieties. The Company continues to select strains with new characteristics, but continuous investment in breeding is essential to maintaining competitive advantage.

The Company holds exclusive utilization rights while the breeder's rights for its registered varieties under the Plant Variety Protection and Seed Act, "Pecheka Pure" (expiring May 2035) and "Pecheka Ever" and "Pecheka Honoka" (each expiring June 2042), remain in effect; however, after expiration, third parties will be able to freely cultivate and use seedlings and fruit of these three varieties. After the expiration of breeder's rights, competitors will be able to produce and sell the same varieties, potentially causing the Company to lose its competitive advantage and affecting management strategy and business performance. In particular, since "Pecheka Pure" is set to expire in the relatively near future of 2035, the development and cultivation of successor varieties is an important management issue.

Since agricultural products are cultivated inside vinyl greenhouses or in outdoor fields, it is extremely difficult to completely prevent viral infections or pest outbreaks, and if unexpected pests or diseases occur on a large scale or over a wide area, the Company may not achieve the expected harvest results, which could affect business performance. As countermeasures, the Company maintains close communication with producing regions, and cultivation technique instructors conduct on-site inspections of the growth conditions of seedlings and fruit to detect abnormalities early, but complete prevention is difficult. Similar risks exist in both the Strawberry & Fresh Produce Business and the Potato Business.

Iwao Takahashi, Chairman and Representative Director, is the founder of the Company and, as of the end of the consolidated fiscal year under review, is also the largest shareholder, holding 40.04% of the total number of issued shares; therefore, if he becomes unable to perform his duties for any reason, this could affect business development and performance. Since September 2013, Shu Masaba has served as Representative Director and President, taking on day-to-day management execution, transitioning to a structure less reliant on the founder, but the reduction of this dependence remains a work in progress, and the Company continues to promote the qualitative improvement of its officers and employees. Furthermore, holding over 40% of shares gives significant influence over decision-making at shareholders' meetings.