MIDAC HOLDINGS CO., LTD.

The waste treatment business operates under a permit system, and if it violates the Waste Management Act, it may be subject to administrative dispositions such as orders to suspend all or part of its operations, or revocation of permits. In addition, changes in laws and regulations or the introduction of new ordinances that strengthen regulation may affect business performance. The Group strives to ensure thorough legal compliance through employee training and internal audits.

General waste treatment business permits have a validity period of two years, while industrial waste treatment business permits have a validity period of five years (seven years in the case of excellent operator certification). If, at the time of renewal or new acquisition, the business is determined not to comply with the standards under the Waste Management Act, it may be forced to suspend part or all of its operations. While the Group currently believes there are no factors that would impede permit renewal, the risk of non-compliance at the time of future renewals cannot be eliminated.

Final disposal sites, both during and after the completion of operations, are required to be maintained and managed over a long period of time until regulatory approval is granted. If contaminants leak out due to natural disasters or human error, this could damage the Group's corporate credibility and have a material impact on its business. The Group maintains a policy of conducting maintenance and management under a thoroughly compliant system.

Since a final disposal site ceases operation once its landfill capacity is reached, continuous development of new sites is essential. If development plans are delayed, the Group would need to use costlier third-party disposal sites, and if a plan is cancelled, amounts already paid could be impaired. Unforeseeable delays or cancellations of development could pose a risk to business results.

Amid concerns over a potential Tokai earthquake and an eruption of Mt. Fuji, the majority of the Group's business sites and customers are concentrated in the four Tokai prefectures, meaning a large-scale disaster could have a material impact on operations. Additionally, the operation of numerous vehicles and the handling of hazardous, toxic, and deleterious substances could result in serious fires or accidents that would damage the Group's social credibility. The Group aims to minimize such impacts through the formulation of a BCP (Business Continuity Plan) and the conclusion of a “Mutual Disaster Assistance Agreement” with other companies in the industry.

The Group holds multiple permits to handle specially controlled waste with explosive, infectious, and toxic properties, which serves as a competitive advantage in its business. However, if transport vehicles or treatment facilities are involved in accidents or disasters resulting in leakage or similar incidents, this could damage the Group's social credibility and have a material impact on its business.

Due to long-term borrowings for the construction of Landfill Sections 2 through 4 at Okuyama no Mori Clean Center and the construction of a new water treatment facility, the balance of interest-bearing debt at the end of the current fiscal year under review stood at ¥13,072 million, with an interest-bearing debt ratio of 33.2%. Since fund procurement relies mainly on bank borrowings, a continued rise in interest rates could affect business performance.

As attention to the waste treatment business grows as an environmental business, an increase in new entrants from other industries is expected. If excessive competition arises in the regions where the Group's business base is located, this could lead to price competition, lowering profitability and affecting business performance.

Fixed assets at the end of the current fiscal year under review totaled ¥30,540 million, of which goodwill accounted for ¥3,150 million. Goodwill is amortized on a straight-line basis over the period during which its effects are expected to be realized; however, if impairment is deemed necessary due to changes in the market environment or other factors, the recognition of impairment losses could affect the Group's business results and financial position.

The Group conducts M&A activities with the aim of enhancing corporate value; however, despite prior due diligence, if there are significant changes in the market or competitive environment following an acquisition, or if the acquired business fails to develop as planned, this could result in the inability to recover invested funds or the incurrence of additional costs, thereby affecting business performance. The Group's policy is to proceed with M&A by taking into account market trends, the target company's business performance and financial condition, and the results of risk analysis.