FULUHASHI EPO CORPORATION

The Biomaterial Business and Resource Recycling Business are subject to numerous legal regulations centered on the Waste Management Act, and in the event of violations, administrative dispositions such as revocation of permits and licenses may be imposed. Continued revisions to the Basic Act for Establishing a Sound Material-Cycle Society and various recycling-related laws may also result in stricter regulations. The Group is monitoring trends in legal amendments and promoting the development of internal systems, but if it fails to respond promptly to unforeseen legal amendments, this could have a material impact on its business performance and financial condition.

The industrial waste disposal permits obtained under the Waste Management Act are a prerequisite for business continuity, and if illegal dumping, false manifest entries, or violations of processing facility standards occur, administrative dispositions such as business suspension orders or permit revocation may be imposed. Many permits require renewal within a certain period, and failure to complete renewal procedures or falling under disqualification requirements could also constitute grounds for revocation. While the Group currently believes there are no such applicable matters, if a permit were to be revoked, this would cause material disruption to its core business activities.

The volume of woody waste handled in the Biomaterial Business and Resource Recycling Business is linked to trends in domestic housing starts, and a decline in construction volume due to deterioration in economic activity or the real estate market could lead to a decrease in waste recycling processing volume and a decrease in the supply of wood chip products. The Group monitors housing start figures and takes measures regarding its sales coverage and processing fees, but it recognizes that it is difficult to completely eliminate this impact.

The core Biomaterial Business is a business model that generates revenue from both waste recycling processing service fees and wood chip sales, making it important to maintain the supply-demand balance between the two. A decrease in the volume of processing services received could lead to a shortage of chip supply and increased costs for external procurement, while a decrease in wood chip demand due to factors such as the suspension of equipment operations at major customers could lead to restrictions on accepting processing services and increased external storage costs. If the supply-demand balance deteriorates significantly, this could affect business development, performance, and financial condition.

Numerous small and medium-sized waste disposal operators exist in the Tokai and Kanto regions where the Biomaterial Business and Resource Recycling Business operate, and competition, including price competition, may intensify due to new market entrants, expansion by existing operators, or industry consolidation. Competition also exists domestically and overseas in the Environmental Logistics Business, and intensifying competition amid insufficient demand recovery would affect business performance. The Group is pursuing differentiation through investment in advanced waste processing and recycling equipment and by building comprehensive waste recycling processing services.

The Group participates in biomass power plant projects through investments in companies such as Japan Bio Energy Co., Ltd., and supplies wood chips under long-term contracts, but if the supply volume decreases over the long term due to the operational status of power generation facilities, etc., business profitability could deteriorate. In addition, if results as planned are not achieved, or depending on future business performance, an impairment loss on the equity investment may be recognized. If difficulties arise in securing the supply volume of wood chips, this could also affect business relationships.

An impairment loss may be recognized with respect to multiple recycling processing facilities in Japan (Tokai and Kanto regions) and production facilities overseas (Thailand and Vietnam) if there is a significant deterioration in the business environment, decline in profitability, or fall in market prices. Capital investment in new recycling processing facilities planned for the future could also become a factor pressuring business performance, as well as give rise to impairment risk, if it does not proceed as planned. Although the Group formulates business plans based on market research, there is no guarantee that results will be achieved as planned.

Because large quantities of woody waste and other materials are handled at recycling processing facilities, there is an inherent risk of fire accidents, and if one occurs, part or most of a business site could be shut down due to damage to or collapse of facilities. If damage extends to the surrounding area, this could result in a loss of trust and substantial claims for damages, potentially having a material impact on business operations, performance, and financial condition. The Group has established thorough routine equipment inspection, maintenance, and upkeep, as well as a fire prevention and management system.

The Group outsources part of its waste collection and transport operations, as well as secondary processing and final disposal operations, to external contractors, and if a contractor is found to be in breach of contract, such as through legal violations, the Group's management responsibility may be called into question, potentially causing significant damage to its credibility. The Group establishes selection criteria, confirms service quality and legal compliance status, verifies processing status through manifests, and conducts on-site inspections through visits and internal audits, but it is difficult to completely eliminate this risk.

In the course of its business, the Group handles personal information of customers, confidential information of other companies, and its own confidential information, and if hardware, software, or databases are disrupted due to cyberattacks, unauthorized access, or other unforeseeable events, this could result in the loss or leakage of confidential information, interruption or delay of operations, and repair costs or liability for damages. The Group implements measures such as strengthening security through the introduction of firewalls, compliance with personal information protection laws and regulations, and information management training for officers and employees, but complete prevention is difficult.