TRE HOLDINGS CORPORATION

The Group's Waste Treatment & Recycling Business is highly dependent on construction-related industrial waste, and its business partners are also concentrated among general contractors and home builders. If the volume of construction work decreases due to economic fluctuations or a deterioration in the real estate market, the Group could be drawn into price competition with competitors, leading to a decline in the perceived value of its recycling business, which is a differentiation strategy, and potentially affecting business performance. The Group promotes reduction of environmental burden through proper waste treatment as its differentiation strategy, but there are concerns that its effectiveness may be limited during periods of demand decline.

In the Resource Recycling Business, the purchase and sale prices of iron scrap and non-ferrous metals are linked to resource prices such as iron ore and copper ore, as well as metal product prices. Sudden changes in market prices may, depending on contract terms, lead to reduced profit or losses, and prolonged price stagnation may narrow profit margins and affect business performance. The Group takes measures to minimize the impact on earnings by adjusting purchase prices in response to market fluctuations, but it may be difficult to respond to sudden fluctuations.

At the end of the current consolidated fiscal year, the total amount of corporate bonds and borrowings reached ¥60,388 million (35.3% of total assets), and the proportion of tangible and intangible fixed assets to total assets was also high at 60.8%. As funding needs are expected to increase further with the advancement of the growth strategy, an increase in fundraising costs due to rising interest rates or a contraction in financing due to deterioration in financial market conditions may affect cash flow. Fixed-rate borrowings are not affected by interest rate fluctuations for a certain period, but interest rate rise risk remains for the variable-rate portion.

The industrial waste treatment business requires licenses from prefectural governors or the mayors of government-designated cities based on numerous laws and regulations, including the Waste Management Act. If illegal dumping, manifest violations, or violations of treatment standards occur, the Group may be subject to administrative dispositions such as business suspension orders or license revocation. Additionally, if a license renewal application is judged not to conform to the standards, it may be denied, which could hinder business continuity. While the Group has not experienced any such violations to date, it has adopted a policy of actively investing in future regulatory tightening as a business opportunity.

Since landfill sites have limited capacity, it is essential to advance new development plans; however, if development is halted due to unforeseeable circumstances, the investment may become unrecoverable. If development plans do not proceed as scheduled, the Group may be forced to use more costly third-party disposal sites, affecting its business performance and financial condition. Additionally, if environmental contamination occurs at existing disposal sites due to large-scale natural disasters or unforeseen accidents, this could have a material impact on business performance and financial condition.

The Group operates six biomass power plants, primarily in eastern Japan, with the Renewable Energy Business serving as part of its earnings base. If a power plant becomes unable to operate for an extended period due to difficulty securing domestic fuel materials (such as wood chips), a large-scale natural disaster, or equipment malfunction, the resulting decrease in operating days may affect business performance and financial condition. The Group strives for stable operations through building long-term procurement arrangements with local forestry cooperatives and other partners and through planned maintenance, but there are limits to its ability to respond to unforeseen circumstances.

Shredders, key equipment in the Resource Recycling Business, carry a relatively high risk of explosion and fire, and a large-scale accident could result in prolonged equipment downtime and liability issues. Although safety measures such as explosion suppression devices and fire extinguishing equipment are in place, unforeseen incidents cannot be completely eliminated. In the event of an accident, in addition to the direct impact on business performance and financial condition, there is also concern about the indirect impact of loss of customer trust.

If unforeseen incidents occur, such as external computer virus infections or theft or falsification of important data, this may result in liability for damages due to information leakage, substantial expenditure on countermeasures, and a decline in reliability, potentially affecting business performance and financial condition. The Group implements countermeasures through the latest security measures, the establishment of the "Basic Policy on Information Security," and security training for Group employees, but there are limits to responding to attacks that exceed expectations. The Group regularly holds Information Security Committee meetings to strengthen its risk management system.

Surges in electricity rates and crude oil prices due to changes in the international situation may affect the Group's business performance through increased logistics costs and facility operating costs. The Waste Treatment & Recycling Business and Resource Recycling Business are energy-intensive, and if cost increases cannot be passed on to sales prices, profitability may deteriorate. The Group is working to minimize the impact by diversifying its raw material procurement sources, but there are limits to responding to cost fluctuations caused by external factors.

Against the backdrop of a declining young working-age population due to the falling birthrate, competition for human resources is intensifying, and there is also a risk of mid-career resignation among hired personnel. The Group's business expansion is highly dependent on securing and developing excellent human resources, and if problems arise in recruiting, securing, or developing personnel, this may affect business performance. The Group is working to improve working conditions and the workplace environment and to develop an environment for human resource development, including education and training, but maintaining a competitive advantage is a challenge amid a worsening labor shortage across the industry.