Hokuto : Summary of Consolidated Financial Results for the Nine Months Ended December 31, 2021 (Based on Japanese GAAP)

3. Forecast of consolidated financial results for the year ending March 31, 2022 (from April 1, 2021 to March 31, 2022)

Percentages indicate year-on-year changes

Note: Revisions to the earnings forecasts most recently announced: Yes

The Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and relevant ASBJ regulations from the beginning of the fiscal year ending March 31, 2022. Although this impact has been taken into account, year-on-year changes for net sales are not presented in the consolidated earnings forecasts above as the accounting method used for comparison differs.

4. Notes

(3) Changes in accounting policies, changes in accounting estimates, and restatement of prior period financial statements

Note: For the details, please refer to 'Changes in accounting policies' in '(3) Notes to quarterly consolidated financial statements' in '2. Quarterly Consolidated Financial Statements and Significant Notes Thereto' on page 8 of the attached materials.

(4) Number of issued shares (common shares)

Total number of issued shares at the end of the period (including treasury shares)

Average number of shares during the period (cumulative from the beginning of the fiscal year)

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit corporation.
• Proper use of forecasts of financial results, and other special matters

(Cautions on forward-looking statements, etc.)

Forward-looking statements, including the earnings forecasts stated in this document, are based on information currently available to the Company and certain assumptions deemed reasonable. Consequently, any statements herein do not constitute assurances regarding actual results by the Company. Actual results may differ materially from the forecasts due to various factors. For the suppositions that form the assumptions for earnings forecasts and cautions concerning the use thereof, please refer to '(3) Information regarding consolidated earnings forecasts and other forward-looking statements' in '1. Qualitative Information Regarding Financial Results for the Nine Months Ended December 31, 2021,' on page 3 of the attached materials.

1. Qualitative Information Regarding Financial Results for the Nine Months Ended December 31, 2021

1. Explanation of operating results
   The Company has applied the "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and relevant ASBJ regulations from the beginning of the first quarter of the fiscal year ending March 31, 2022. As a result, net sales for the nine months ended December 31, 2021 decreased from the same period of the previous fiscal year, and in the description about the operating results mentioned below, the amount and percentage of year-on-year change of net sales are not included.
   During the nine months ended December 31, 2021, the Japanese economy saw a gradual recovery in economic and social activities due to the lifting of the state of emergency and the strict infection control measures on September 30, 2021, as well as due to a significant decrease in the number of new cases as a result of progress with vaccination. However, the outlook for the global economy continues to be unpredictable due to the impact of the semiconductor shortage in various industries, soaring prices of resources such as crude oil, and concerns about a global outbreak of a highly infectious new COVID-19 variant (the Omicron strain).
   In this economic environment, the Group believes that its priority is the safety of all consumers and employees, and it carried out business activities to deliver deliciousness and health to more and more people through research & development, production, and sales of the health food, mushrooms, primarily in the mushroom business, while taking into account measures to prevent the spread of COVID-19. Furthermore, the Group formulated a new Medium-Term Management Plan with the Management Vision of "Expand the market and consumption, with delivering health through mushrooms as our mission" and "Achieve both generation of profit and social responsibility as a company," and carried it out from April 2021.
   As a result of the above, the operating results of the Group for the nine months ended December 31, 2021 were net sales of ¥52,539 million (¥55,439 million in the same period of the previous fiscal year), decreased by ¥835 million due to the application of the Accounting Standard for Revenue Recognition. Operating profit was ¥1,440 million (down 67.4% from the same period of the previous fiscal year), ordinary profit was ¥1,965 million (down 55.0% from the same period of the previous fiscal year), and profit attributable to owners of parent was ¥1,253 million (down 57.1% from the same period of the previous fiscal year).
   Production output for the nine months ended December 31, 2021 consists of 35,084t of Bunashimeji, including Bunapi (up 1.4% from the same period of the previous fiscal year), 14,364t of Eryngii (up 0.7% from the same period of the previous fiscal year), and 10,345t of Maitake (down 1.1% from the same period of the previous fiscal year).
   Performance in each business segment for the nine months ended December 31, 2021 was as follows.
   [Mushroom business in Japan]
   The production division performed even more thorough hygiene control, worked to improve quality and for stable cultivation, and produced mushrooms safely and securely, while continuing to take into account measures to prevent the spread of COVID-19.
   The R&D division worked to strengthen the quality control system, develop new high value-added products and pursue pharmacological effects and functionality of mushrooms.
   The sales division advocated for "Kinkatsu through mushrooms (the lifestyle habit of incorporating mushrooms into daily meals)" with the three pillars of health, beauty and sports in order to stimulate mushroom demand amid not being able to carry out direct sales promotion activities due to the impact of COVID-19, and carried out sales activities with a commitment to freshness. In terms of sales, the price of mushrooms declined as the market value of produce was low in general due to the abundant supply of produce because of continuous days with good weather in the first half of the nine months ended

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December 31, 2021. In addition, as the warm weather continued into the fall, which is the season when demand for mushrooms is high, vegetable prices remained sluggish and mushroom prices remained low.

As a result, net sales for the mushroom business in Japan as a whole were ¥33,904 million (¥37,876 million in the same period of the previous fiscal year).

Net sales decreased by ¥679 million due to the application of the Accounting Standard for Revenue Recognition and relevant ASBJ regulations.

[Mushroom business outside Japan]

At Hokto Kinoko Company, a local subsidiary in the U.S., net sales and operating profit both showed momentum far greatly exceeding the plan in the first half of the fiscal year, as sales volume and unit price both exceeded the plan against the backdrop of economic activities activating due to the spread of vaccinations, and sales were strong, primarily in Food Service, due to the recovery of the American economy in the third quarter of the fiscal year. However, operating profit fell below the plan, primarily due to factors such as rising raw material costs and personnel expenses, as well as disruptions in the amount of containers because of the impact of COVID-19. At Taiwan Hokuto Corporation, a local subsidiary in Taiwan, sales related to restaurants were strong as COVID-19 infections in the country subsided and restrictions on in-store eating and drinking were gradually eased, but sales of raw mushrooms struggled due to the severe decline in vegetable prices. At Hokto Malaysia Sdn. Bhd., a local subsidiary in Malaysia, the impact of COVID-19 remained in Malaysia as well as various ASEAN countries, and consumption remained sluggish due to the increasing trend of restrained buying as a result of the economic outlook being unclear. Furthermore, sales were impacted by the frequent occurrence of cancellations and ships not coming to port due to disruptions in the amount of containers from Malaysia to various ASEAN countries. In this difficult environment, net sales fell below the plan despite focusing on sales, primarily bargain sales, and reducing expenses.

As a result, net sales for the mushroom business outside Japan as a whole were ¥4,577 million (¥3,491 million in the same period of the previous fiscal year). There is no effect on net sales due to the application of the Accounting Standard for Revenue Recognition and relevant ASBJ regulations.

[Processed products business]

The processed products business carried out sales of processed mushroom products, such as those that are boiled or frozen, developed boiled, frozen and dried items, and worked to develop new products and develop markets. In the first half of the fiscal year, although as an effect of COVID-19, people continued to prefer eating at home, and business related to restaurants continued to face difficult conditions, the impact of COVID-19 weakened in the third quarter of the fiscal year, leading to a recovery trend in convenience stores and business related to restaurants, and sales were almost in line with the plan. In the mail-order business, sales of retort food were favorable. Furthermore, at the subsidiary Arden Corporation, sales decreased year on year due to a rebound from the previous year.

As a result, net sales for the processed products business were ¥5,896 million (¥6,383 million in the same period of the previous fiscal year). Net sales decreased by ¥4 million due to the application of the Accounting Standard for Revenue Recognition and relevant ASBJ regulations.

[Chemical products business]

Amid unstable procurement of imported materials and a trend of price hikes caused by soaring crude oil prices, the First Business Department, whose main business is packaging materials, focused on providing appropriate information to customers and a stable supply of materials. At the Second Business Department, which primarily produces and sells agricultural materials and our own products, made efforts to improve the quality and production efficiency of plastic molding, as well as to sell machinery to agricultural producers and to receive new orders for our own products.

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As a result, net sales for the chemical products business were ¥8,160 million (¥7,687 million in the same period of the previous fiscal year). Net sales decreased by ¥150 million due to the application of the Accounting Standard for Revenue Recognition and relevant ASBJ regulations.

1. Explanation of financial position
   Positions of assets, liabilities and net assets, and the factors thereof as of December 31, 2021 are as follows.
   (Assets)
   Current assets as of December 31, 2021 amounted to ¥28,713 million, up ¥1,831 million from the previous fiscal year end. This was due mainly to an increase of ¥2,173 million in notes and accounts receivable - trade. Non-current assets amounted to ¥77,554 million, up ¥4,199 million from the previous fiscal year end. This was due mainly to an increase of ¥4,944 million in property, plant and equipment, gross.
   As a result, total assets amounted to ¥106,268 million, up ¥6,030 million from the previous fiscal year end.
   (Liabilities)
   Current liabilities as of December 31, 2021 amounted to ¥29,394 million, up ¥6,071 million from the previous fiscal year end. This was due mainly to an increase of ¥10,014 million in short-term borrowings and a decrease of ¥3,196 million in current portion of long-term borrowings included in other under current liabilities. Non-current liabilities amounted to ¥23,638 million, up ¥866 million from the previous fiscal year end. This was due mainly to an increase of ¥831 million in long-term borrowings.
   As a result, total liabilities amounted to ¥53,033 million, up ¥6,937 million from the previous fiscal year end.
   (Net assets)
   Total net assets as of December 31, 2021 amounted to ¥53,234 million, down ¥906 million from the previous fiscal year end. This was due mainly to the recording of ¥1,253 million in profit attributable to owners of parent, a decrease of ¥655 million in retained earnings due to the payment of dividend of ¥1,908 million and a decrease of ¥420 million in total accumulated other comprehensive income.
   As a result, the equity ratio was 50.1% (54.0% at the end of the previous fiscal year).
2. Information regarding consolidated earnings forecasts and other forward-looking statements
   Regarding the earnings forecasts, the Company has revised the earnings forecasts announced in the "Summary of Consolidated Financial Results for the Year Ended March 31, 2021 (Based on Japanese GAAP)" dated May 14, 2021, taking into account the progress of operating results during the nine months ended December 31, 2021. For details, please refer to the "Notice Concerning Revisions to Full-Year Financial Results Forecasts for the Fiscal Year Ending March 31, 2022" released today (February 10, 2022).

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