PICKLES HOLDINGS CO., LTD.

Since domestic vegetables such as Chinese cabbage and cucumber are the main raw materials, abnormal weather events such as extreme heat, heavy rainfall, or insufficient sunlight causing poor crop growth may make it difficult to secure the necessary volume, resulting in lost sales opportunities, and may increase manufacturing costs due to higher procurement prices and lower yield rates. In recent years, the frequency and scale of abnormal weather events have expanded due to the effects of global warming, and if elevated procurement prices remain persistently high over the long term, this could lead to a sustained decline in profit margins or operating losses. Although measures such as contract farming, diversification of production areas, and adjustment of product composition are being implemented, if cost increases cannot be fully absorbed, this may affect business performance and financial condition.

Sales dependence on the Seven & i Holdings Co., Ltd. group was at a high level of 26.6% (¥11,046 million) in FY2025 (ended February 2025), of which sales to Seven-Eleven Japan Co., Ltd. accounted for ¥6,637 million (16.0%) and sales to Ito-Yokado Co., Ltd. accounted for ¥2,521 million (6.1%). If there is a change in the business policies or transaction policies of these customers, sales could be directly and significantly affected. Although efforts are being made to secure stable transactions, the structural risk of concentration in a single group continues.

While efforts are made to ensure food safety through initiatives such as the use of JFS-B standards and food defense measures, if unexpected problems occur in raw materials or manufacturing processes, or if reputational damage arises from broader food safety issues in society not directly related to the Group, this could damage the corporate and brand image. This may lead to a decline in consumer purchasing intent, resulting in reduced product sales, which could affect business performance and financial condition. This is a fundamental risk for a food manufacturer, and delayed responses could also affect relationships with business partners.

Due to the sales trends of major products and the impact of raw material procurement prices, profits tend to be concentrated in the first and second quarters. In FY2025 (ended February 2025), operating income/loss in the fourth quarter was a loss of ¥32 million, while the combined operating income for the first and second quarters accounted for 87.3% of the full-year operating income of ¥1,278 million. If weak demand in the second half of the fiscal year coincides with rising raw material costs, there is a risk that full-year performance could fall significantly short of expectations.

To strengthen the nationwide product supply system, the Company is establishing new factories and upgrading production equipment at existing factories. However, if capital investments do not proceed as planned or if the expected expansion in production volume cannot be achieved, lost sales opportunities may result. In addition, an increased burden of depreciation expenses could lower profit margins, affecting business performance and financial condition. Given the structure in which fixed costs increase in advance, there is an inherent risk that profitability could deteriorate significantly if demand falls short of expectations.

The Company holds a large amount of fixed assets, and if the profitability of factories and other facilities or the market value of held assets declines significantly such that recovery is no longer expected, the Company may be forced to recognize impairment losses. As the balance of fixed assets increases along with the expansion of capital investment, the risk of impairment rises when business conditions deteriorate or demand declines. The recognition of impairment losses could have a significant, albeit temporary, impact on business performance and financial condition.

The Company has recorded goodwill arising from corporate acquisitions, which reflects business value and expected synergy effects. However, if the expected results are not achieved due to changes in the business environment or competitive landscape, the Company may be forced to recognize impairment losses on goodwill, which could affect business performance and financial condition. This risk requires continuous management in cases where the post-acquisition integration process or changes in market conditions fall short of expectations.

The Company outsources production of some products to overseas companies, including in South Korea. If unforeseen economic fluctuations, political issues, food safety problems, or infectious disease outbreaks occur, this could result in lost sales opportunities due to production stoppages or delays at outsourcing partners, as well as reduced profit margins due to higher manufacturing and logistics costs. Although efforts are made to select reliable outsourcing partners, geopolitical risks and infectious disease risks are external factors that are difficult to fully control.

The Company is subject to a wide range of laws and regulations, including the Food Sanitation Act, the Product Liability Act, the Waste Management Act, the Water Pollution Control Act, and the Unfair Competition Prevention Act. Strengthening of existing regulations or the introduction of new regulations may restrict business activities or result in additional costs such as new capital investment. In addition, if compliance issues, including legal violations, occur, increased response costs could lower profit margins, affecting business performance and financial condition. While the Company is working to build a compliance framework, ongoing responses to changes in the regulatory environment are required.

The Company has business sites, including factories, throughout Japan. If a large-scale earthquake, typhoon, or other natural disaster, or an infectious disease outbreak such as COVID-19, causes severe damage to business sites or nearby social infrastructure, this could result in delays or suspensions in procurement from suppliers, delays or suspensions of production at factories, and lost sales opportunities. Although a business continuity plan (BCP) has been formulated, there is a risk that a disaster of a scale exceeding expectations could have a significant impact on business performance and financial condition.