Hokuto : Consolidated Financial Results for the Year Ended March 31, 2023

Translation

Notice: This document is an excerpt translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail.

Consolidated Financial Results

for the Year Ended March 31, 2023

(Based on Japanese GAAP)

Company name:	HOKUTO CORPORATION
Stock exchange listing:	Tokyo
Stock code:	1379	URL https://www.hokto-kinoko.co.jp
Representative:	President		Masayoshi Mizuno
Inquiries:	Executive Officer, General Manager of	Kohei Nakada
Accounting Department
Scheduled date of ordinary general meeting of shareholders:	June 23, 2023
Scheduled date to file Securities Report:	June 23, 2023
Scheduled date to commence dividend payments:	June 26, 2023
Preparation of supplementary material on financial results:	Yes
Holding of financial results meeting:		Yes

May 12, 2023

TEL [phone]

							(Amounts less than one million yen are rounded down)
1. Consolidated financial results for the year ended March 31, 2023 (from April 1, 2022 to March 31, 2023)
(1) Consolidated operating results						Percentages indicate year-on-year changes
		Net sales		Operating profit	Ordinary profit	Profit attributable to
			owners of parent
		Millions of yen		%	Millions of yen	%	Millions of yen		%	Millions of yen		%
Year ended March 31, 2023		72,980		2.9	(2,948)	-		(1,854)		-	(2,037)		-
Year ended March 31, 2022		70,932		-	2,014	(66.5)		3,658		(43.9)	2,530		(37.3)
Note: Comprehensive income	Year ended March 31, 2023		¥(1,812) million	[-%]
	Year ended March 31, 2022		¥2,064 million	[(59.3)%]
		Earnings per share	Diluted earnings per	Profit attributable to		Ordinary profit/total	Operating profit/net
			share		owners of			assets		sales
						parent/equity
		Yen		Yen			%					%			%
Year ended March 31, 2023		(64.43)		-			(3.9)				(1.8)			(4.0)
Year ended March 31, 2022		80.26		69.93			4.7					3.6			2.8
Reference: Share of profit (loss) of entities accounted for using equity method
		Year ended March 31, 2023		¥- million
		Year ended March 31, 2022		¥- million

Note: As 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 year ended March 31, 2022, each figure for the year ended March 31, 2022 is the figure after the application of the said standard, etc. The percentage of year-on-year change is not shown.

(2) Consolidated financial position

		Total assets	Net assets	Equity ratio	Net assets per share
			Millions of yen	Millions of yen	%	Yen
As of March 31, 2023			104,897	50,955	48.6	1,609.46
As of March 31, 2022			104,933	54,509	51.9	1,726.24
Reference: Equity	As of March 31, 2023	¥50,955 million
	As of March 31, 2022	¥54,509 million
(3) Consolidated cash flows
		Cash flows from	Cash flows from	Cash flows from	Cash and cash equivalents
		operating activities	investing activities	financing activities	at end of period
			Millions of yen	Millions of yen	Millions of yen	Millions of yen
Year ended March 31, 2023		4,675	(4,147)	888	12,047
Year ended March 31, 2022		5,851	(11,608)	3,012	10,399

2. Cash dividends

		Annual dividends per share		Total cash	Dividend payout	Ratio of dividends
						to net assets
	1st quarter-end	2nd quarter-end	3rd quarter-end	Fiscal year-end	Total	dividends (Total)	ratio (Consolidated)	(Consolidated)
	Yen	Yen	Yen	Yen	Yen	Millions of yen	%	%
Year ended March 31, 2022	-	10.00	-	50.00	60.00	1,894	74.8	3.5
Year ended March 31, 2023	-	10.00	-	30.00	40.00	1,265	-	2.4
Year ending March 31, 2024	-	10.00	-	-	-		-
(Forecast)

Total cash dividends do not include dividends paid on the Company's shares held by the Board Incentive Plan Trust (BIP Trust) (¥4 million for the year ended March 31, 2022, ¥3 million for the year ended March 31, 2023) and dividends paid on the Company's shares held by the employee stock ownership plan (ESOP) (¥9 million for the year ended March 31, 2022, ¥2 million for the year ended March 31, 2023).

Note: The forecast for the year-end dividends for the year ending March 31, 2024 has not yet been determined.

3. Forecast of consolidated financial results for the year ending March 31, 2024 (from April 1, 2023 to March 31, 2024)

Percentages indicate year-on-year changes

	Net sales		Operating profit		Ordinary profit			Profit attributable to	Earnings per share
					owners of parent
Six months ending	Millions of yen	%	Millions of yen		%	Millions of yen		%	Millions of yen		%	Yen
35,800	13.2	(2,730)		-	(2,650)		-		(2,110)		-	(66.58)
September 30, 2023
Full year	80,200	9.9	1,920		-	2,110		-		700		-	22.08
4. Notes
(1) Changes in significant subsidiaries during the year ended March 31, 2023			No
(changes in specified subsidiaries resulting in the change in scope of consolidation):
(2) Changes in accounting policies, changes in accounting estimates, and restatement of prior period financial statements
Changes in accounting policies due to revisions to accounting standards and other regulations:	Yes
Changes in accounting policies due to other reasons:						No
Changes in accounting estimates:									No
Restatement of prior period financial statements:						No

(3) Number of issued shares (common shares)

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

	As of March 31, 2023	33,359,040	shares	As of March 31, 2022	33,359,040	shares
Number of treasury shares at the end of the period
	As of March 31, 2023	1,698,816	shares	As of March 31, 2022	1,782,109	shares
Average number of shares during the period
	Year ended March 31, 2023	31,616,605	shares	Year ended March 31, 2022	31,526,608	shares

Reference: Summary of non-consolidated financial results
1. Non-consolidated financial results for the year ended March 31, 2023 (from April 1, 2022 to March 31, 2023)
(1) Non-consolidated operating results				Percentages indicate year-on-year changes
	Net sales		Operating profit	Ordinary profit	Profit
	Millions of yen	%	Millions of yen	%	Millions of yen		%	Millions of yen	%
Year ended March 31, 2023	49,796	1.4	(3,295)	-	(3,219)		-	(2,811)	-
Year ended March 31, 2022	49,090	-	1,117	(78.0)	2,425		(55.1)	1,595	(52.2)
	Earnings per share	Diluted earnings per share
		Yen		Yen
Year ended March 31, 2023		(88.91)		-
Year ended March 31, 2022		50.62		44.11

Note: As 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 year ended March 31, 2022, each figure for the year ended March 31, 2022 is the figure after the application of the said standard, etc. The percentage of year-on-year change is not shown.

(2) Non-consolidated financial position

			Total assets			Net assets			Equity ratio	Net assets per share
			Millions of yen				Millions of yen			%		Yen
As of March 31, 2023				95,744				48,768			50.9		1,540.37
As of March 31, 2022				97,078				53,013			54.6		1,678.88
Reference: Equity	As of March 31, 2023	¥48,768 million
	As of March 31, 2022	¥53,013 million
2. Forecast of non-consolidated financial results for the year ending March 31, 2024 (from April 1, 2023 to March 31, 2024)
												Percentages indicate year-on-year changes
	Net sales		Operating profit		Ordinary profit			Profit		Earnings per share
Six months ending	Millions of yen	%	Millions of yen		%	Millions of yen		%		Millions of yen		%	Yen
23,800	18.0	(2,940)		-	(870)		-		(620)		-	(19.56)
September 30, 2023
Full year	55,800	12.1	1,000		-	3,200		-		2,080		-	65.60

• Financial results reports are exempt from audit 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 '(4) Future outlook' in '1. Overview of Operating Results, Etc.,' on page 4 of the attached materials.

1. Overview of Operating Results, Etc.

1. Overview of operating results for the fiscal year ended March 31, 2023
   The Japanese economy during the fiscal year ended March 31, 2023 showed economic activities gradually continuing to normalize due to the steady relaxation of restrictions on activities from the COVID-19 pandemic. However, the outlook remained uncertain due to the soaring prices of energy and raw materials caused by the military invasion of Ukraine by Russia and, furthermore, rising prices of commodities due to the weak yen.
   In this economic environment, the Group believes that its priority is the safety of all consumers and employees, and it carried out business activities primarily in the mushroom business to deliver deliciousness and health to more and more people through research & development, production, and sales of mushrooms, which are a health food, while taking into account measures to prevent the spread of COVID-19. Furthermore, based on its new Medium-Term Management Plan starting from April 2021, the Group carried out initiatives with the Management Vision to "Expand the market and consumption, with delivering health through mushrooms as our mission" and to "Achieve both generation of profit and social responsibility as a company."
   In the current fiscal year, the weather was generally favorable for the growth of fruit and vegetable crops, and vegetable market prices remained low, resulting in low mushroom prices. In addition, manufacturing costs rose significantly due to soaring costs of raw materials, electricity, and packaging, but the Company was unable to pass these costs on to products, resulting in a difficult situation.
   As a result of the above, the operating results of the Group for the fiscal year ended March 31, 2023 were net sales of ¥72,980 million (up 2.9% from the same period of the previous fiscal year), operating loss of ¥2,948 million (operating profit of ¥2,014 million in the same period of the previous fiscal year), ordinary loss of ¥1,854 million (ordinary profit of ¥3,658 million in the same period of the previous fiscal year), and loss attributable to owners of parent of ¥2,037 million (profit attributable to owners of parent of ¥2,530 million in the same period of the previous fiscal year).
   Production output for the fiscal year ended March 31, 2023 consists of 49,345t of Bunashimeji, including Bunapi (up 4.8% year-on-year), 18,902t of Eryngii (down 1.2% year-on-year), and 16,463t of Maitake (up 14.7% year-on-year).
   The overview of each segment for the current fiscal year is as follows.
   [Mushroom business in Japan]
   The production division, amid a significant rise in raw material prices, electricity costs, packaging costs, and other production costs, worked to reduce costs, performed even more thorough hygiene control, worked to improve quality and for stable cultivation, and provided 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, improve existing mushrooms, and pursue pharmacological effects and functionality of mushrooms. In January, we announced the results of a joint research project to demonstrate in human clinical trials that eating mushrooms on a continuous basis improves immune function.
   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 and carried out sales activities with a commitment to freshness. In terms of sales, sales volume increased due to the full operation of the Mie Mushroom Centers, but vegetable prices remained low throughout the year, resulting in weak mushroom prices and other difficult conditions.
   As a result, net sales for the mushroom business in Japan as a whole were ¥47,060 million (up 1.7% year on year).

1

[Mushroom business outside Japan]

Hokto Kinoko Company, a local subsidiary in the U.S., achieved solid sales throughout the year, but operating profit fell short of the plan due to soaring raw materials prices and competition with imported products. At Taiwan Hokuto Corporation, a local subsidiary in Taiwan, sales in the retail market as a whole were sluggish due to a decline in opportunities for self-catering due to the relaxation of COVID-19 restrictions on activities in the first half of the year and increased demand from domestic tourism and the restaurant industry. However, due to a cold snap from mid-December onward, the sales situation changed drastically. As a result, net sales fell slightly short of the plan, but thanks to the effects of cost-cutting measures and other factors, operating profit slightly exceeded the plan. At our Malaysian subsidiary HOKTO MALAYSIA SDN. BHD., with rising inflation across ASEAN countries and soaring prices of essential products, there has been a growing tendency to buy less of non-essential products and to purchase inexpensive products from China, which significantly affected the Company's mushroom sales. Consequently, both net sales and operating profit fell short of the plan.

As a result, net sales for the mushroom business outside Japan as a whole were ¥6,530 million (up 2.9% year on year).

[Processed products business]

The processed products business carried out sales of processed mushroom products, such as those that are boiled or frozen, and worked to develop new products and develop markets. In the restaurant divisions, sales of products for delicatessen and home meal service were strong, and in terms of sales of processed products for the commercial fruit and vegetable market were also steady, mainly for dried and boiled products and pre-packaged shiitake mushroom rice products. In addition, we launched "Itamenoko," a seasoning for stir-frying mushrooms and vegetables, and "Kinokodashi," a seasoning made from ingredients from the mountains and the sea. Meanwhile, sales of frozen mushroom products for commercial use struggled for convenience stores. We launched dried shiitake mushrooms, etc., in the mail-order business, and sales were strong, mainly through our e-commerce website. Furthermore, at the subsidiary Arden Corporation, net sales outpaced projections due to continued strong orders from major customers in the OEM business.

As a result, net sales for the processed products business were ¥7,948 million (up 2.8% year on year).

[Chemical products business]

The First Business Department, whose main business is packaging materials, worked to strengthen sales and profitability by responding to successive price hikes of packaging materials and by making efforts to propose and sell less expensive alternative products that meet customers' quality expectations. The Second Business Department, which primarily produces and sells agricultural materials and our own products, focused on stable supply of some production materials and culture medium, which are in tight supply and demand, to mushroom growers, and also worked to improve the quality of our own products and expand sales. In the manufacturing of our own products, we were affected by rising electricity and other costs.

As a result, net sales for the chemical products business were ¥11,439 million (up 8.3% year on year).

1. Overview of financial position for the current fiscal year (Assets)
   Current assets as of March 31, 2023 amounted to ¥30,790 million, up ¥3,690 million from the previous fiscal year end. This was due mainly to an increase of ¥3,549 million in cash and deposits. Non-current assets amounted to ¥74,106 million, down ¥3,726 million from the previous fiscal year end. This was due mainly to a decrease of ¥4,800 million in property, plant and equipment.
   As a result, total assets amounted to ¥104,897 million, down ¥36 million from the previous fiscal year end.

2