Berg Earth co.,ltd.

Vegetable seedling production is mainly conducted in greenhouses, and there is a risk that adverse weather such as extreme heat, insufficient sunlight, typhoons, or abnormal weather conditions could lead to reduced seedling quality or insufficient production volume. This could also lead to suspension of head office functions or production farms, and a decline in orders received. As countermeasures, the Company is introducing closed-type seedling production facilities, cooling equipment, and environmental measurement and control devices, as well as diversifying production sites, but the impact cannot be completely avoided.

Seeds, a key raw material, are mainly sourced from overseas, and sudden price increases may occur due to changes in local economic conditions or seed production environments. In addition, rising crude oil prices lead to increased winter seedling cultivation costs as well as higher purchase prices for seedling cultivation materials in general. If consumer preference for low prices intensifies, it may become difficult to pass on cost increases to selling prices, which could adversely affect performance.

Since cultivation is mainly conducted in outdoor greenhouses, it is extremely difficult to completely prevent the occurrence of pests and diseases. If pests or diseases occur after delivery, compensation to growers may be required depending on the timing and type of occurrence, and there is also a risk of order declines due to reputational damage. Countermeasures such as occurrence prediction based on years of accumulated data and the introduction of physical pest control equipment are being implemented, but the risk cannot be completely eliminated.

At production sites deployed nationwide, it is necessary to disseminate the skills and know-how of cultivation technicians throughout the organization. If future expansion and increase in production sites result in insufficient cultivation guidance being provided, or if securing personnel becomes difficult or the cost of securing personnel increases, this may affect performance. Although no shortage has occurred at present, the Research Division is establishing a continuous training system through technology development and data accumulation.

The Company specializes in the production and sale of grafted vegetable seedlings and believes it holds a leading position in acquiring users of grafted seedlings, but competition may intensify due to entry from other industries or expansion by competitors. There is a risk that intensified competition could lead to customer attrition or increased costs, affecting performance. The Company aims to expand its market share through strengthening its sales division, developing products that meet customer needs, and expanding production capacity.

The majority of sales and profit are derived from the production and sale of grafted vegetable seedlings, creating a business concentration risk. Major changes in Japanese agriculture due to shifts in national agricultural policy, aging farmers, and lack of successors, or a significant decline in demand for grafted seedlings due to unforeseen technological innovation, could have a material impact on business operations and performance. The Company is working to expand sales of seed-grown seedlings, expand its agricultural materials procurement and sales business, and develop new businesses such as a breeding business.

Demand for vegetable seedlings tends to decline nationwide from November to January (the first quarter), causing sales and profit in the first quarter to be significantly lower compared to other quarters. In the first quarter of FY2025 (ending October 2025), sales were ¥763,430 thousand (10.5% of the total), with an operating loss of ¥374,277 thousand, accounting for the majority of the full-year operating loss of ¥32,624 thousand. The Company is promoting countermeasures for the off-season for flower seedlings and onion seedlings, as well as new product development, but seasonal fluctuations are expected to continue for the time being.

The Company and Berg Fukushima Co., Ltd. are not qualified agricultural land holding corporations and are not permitted to acquire farmland, although deregulation has made farmland leasing possible. Depending on future amendments to the Farmland Act and related laws, restrictions on the freedom to expand production facilities may occur, which could affect business operations and performance. In addition, regulatory changes to the Agricultural Chemicals Regulation Act, the Act on the Handling of Poisonous and Deleterious Substances, the Plant Variety Protection Act, and other laws also pose risks to performance.

The Company continuously invests in equipment to expand orders received, maintain and strengthen a stable production system, and develop new technologies. However, if the investment recovery period becomes prolonged due to significant changes in the business environment or operations, impairment of fixed assets may become necessary due to a substantial decline in profitability. If impairment losses occur, this would have a material impact on performance and financial condition.

Working capital and capital expenditure funds are procured through borrowings from financial institutions, and the balance of interest-bearing debt, including lease obligations, reached ¥2,407,843 thousand at the end of the consolidated fiscal year under review. If future monetary policy trends or changes in interest rate levels prevent fund procurement as planned, this could affect performance, financial condition, and cash flow.