ENVIPRO HOLDINGS Inc.

The prices of iron scrap and non-ferrous metals are linked to resource prices such as iron ore and copper ore, but rapid changes in market conditions may result in reduced profits or losses depending on contract terms. In fact, the price of iron scrap (Tokyo Steel Tahara Kaijo Tokkyu) fell sharply from an average of ¥50,916/ton for the full 15th fiscal year to an average of ¥42,732/ton for the full 16th fiscal year, which also affects inventory value. While the Company basically links purchase prices and selling prices to market conditions, it cannot completely eliminate the time-lag risk during sudden market changes.

Performance can fluctuate significantly due to a combination of factors such as market fluctuations, foreign exchange fluctuations, and changes in raw material volumes. Ordinary income for the 16th fiscal year was ¥1,216 million for the full year, but on a quarterly basis, it ranged widely from ¥41 million (3.4% of the full-year figure) in the first quarter to ¥632 million (52.0% of the full-year figure) in the third quarter, highlighting significant seasonality and dependence on market conditions. Net sales also declined in the fourth quarter to ¥11,303 million compared to other quarters, indicating challenges in revenue stability.

The resource recycling plant of core company Ecomecol is located in Fujinomiya City, Shizuoka Prefecture (at the foot of Mt. Fuji), and is exposed to risks such as an eruption of Mt. Fuji, a Nankai Trough megaquake, and wind and flood damage due to climate change. Group companies with shipping yards may also experience large-scale damage to product inventory from tsunamis or wind and flood disasters. In addition, shredders (large-scale crushing equipment), which are key facilities, carry a relatively high risk of fire or explosion caused by materials being crushed, and a prolonged shutdown could have a material impact on business performance and financial condition.

A wide range of laws and regulations apply, including the Waste Management Act, the Construction Business Act, environmental laws, foreign exchange laws, and anti-bribery laws. If the Company receives a business suspension order or license revocation, or if it is held liable for damages under environmental laws or product liability laws, this could have a material impact on business performance and financial condition. Unexpected enactment, revision, or abolition of laws and regulations in Japan or overseas, or significant regulatory changes, may also restrict existing business operations.

The Company has a high ratio of overseas sales and engages in exports and triangular trade, with a branch in the Netherlands, a branch in the United Kingdom, and a representative office in Vietnam. Deterioration of economic conditions in the countries of business partners, changes in trade regulations, political upheaval, war, and the spread of infectious diseases may affect business performance and financial condition. This is also linked to specific customer concentration risk, with the top three customers (steel manufacturers in Japan, South Korea, and Vietnam) accounting for 24.55% of net sales.

As of the end of June 2025, interest-bearing debt stood at ¥7,735 million, representing 24.7% of total assets. Future changes in economic conditions and the financial environment, as well as rises in market interest rates, could increase financial costs and affect business performance and financial condition. While the Company's policy is to comprehensively consider the financial balance, there is a risk that rising borrowing costs could squeeze profits during periods of interest rate increases.

The Company holds personal information and confidential information from business partners, and any loss, destruction, or leakage of such information could damage social credibility and result in liability for damages. In addition, a cyberattack exceeding the anticipated level of defense could cause internal systems to stop functioning, potentially leading to a temporary business suspension and the burden of response costs. Although the Company has established a Digitalization Promotion Committee to develop and disseminate information management regulations, complete protection against increasingly sophisticated threats is difficult.

The Company actively utilizes M&A as a means of business expansion, but even with detailed due diligence, there is a risk that contingent or unrecognized liabilities may come to light after an acquisition. In addition, if a target company fails to achieve the initially expected results due to changes in the external environment or other factors, this could affect business performance and financial condition. This risk is also linked to the risk of recording impairment losses on goodwill and fixed assets, which could affect the financial soundness of the Group as a whole.

Dust (waste that cannot be recycled) generated in the resource recycling process is shipped to controlled final disposal sites or incineration facilities, but if acceptance restrictions arise due to deteriorating market conditions, processing costs and transportation costs to remote locations may increase. Furthermore, production volume may be limited due to constraints on dust storage capacity at business sites, raising concerns about the impact on business performance and financial condition. This is a cost structure risk unique to the waste treatment business that requires ongoing management.

The Company is working to identify risks and opportunities and disclose information in line with the TCFD recommendations, but decarbonization transition risks may materialize in the form of increased expenses due to the introduction of a carbon tax or a switch to renewable energy power. In addition to the physical risk of increased natural disasters due to climate change, the introduction of new environmental regulations and changes in markets and conditions may affect business performance and financial condition. As the Company's main sites are located at the foot of Mt. Fuji and in coastal areas, there is also a high geographic concentration of physical risk.