Daiei Kankyo Co., Ltd.

Labor costs are rising due to the declining working-age population amid the falling birthrate and aging society, while fuel costs remain elevated due to geopolitical risks and the persistent trend of yen depreciation. If the Group is unable to pass on these cost increases to waste treatment contract prices in a timely manner, it could have a material adverse effect on business performance. The Group is working on price pass-through negotiations and cost reductions, but there is no guarantee that full pass-through can be achieved.

The waste treatment industry has a structure in which small and medium-sized enterprises are dispersed nationwide, and there is a risk that the competitive environment will change due to new entrants from overseas operators and other industries, as well as business expansion by existing competitors through M&A. If competitors achieve a similar one-stop service, the Group's competitive advantage could be lost, making it difficult to acquire new customers or retain existing ones. The Group is working to expand its geographic and business scope, but entering regions where existing operators have strong local relationships may be difficult.

Waste generation volume, particularly in the construction and manufacturing industries, may decline due to Japan's falling birthrate, aging population, population decline, and economic downturns, potentially creating downward pressure on waste treatment contract prices. In addition, rising awareness of sustainability and government policies promoting recycling are expected to lead to a long-term decline in waste volume and changes in waste treatment methods. The Group is responding through the advancement of its resource recycling system and expansion of its business area, but if it fails to adapt to changes in the macro environment in a timely manner, this could adversely affect business performance.

Due to the decline in the working-age population associated with the falling birthrate and aging society, it may become difficult to secure and develop excellent human resources, which could lead to the loss of important internal know-how and resources and a decline in competitiveness. If an unexpectedly large-scale outflow of human resources occurs, this could also lead to damage to social credibility. The Group is implementing human resource investment measures such as promoting diversity management and developing next-generation leaders, but there is no guarantee of their effectiveness.

The Group must obtain and maintain licenses under the Waste Management Act and numerous other environmental laws and regulations, and there is a risk of sanctions such as license revocation or business suspension in the event of violations of laws and regulations or falling under disqualification requirements. The structure is such that a subsidiary or affiliated company falling under disqualification requirements can trigger license revocation requirements at the parent company, resulting in a significant impact on the entire Group. The Group has established a system of thorough compliance education and centralized management of licenses by its business divisions, but if it is slow to respond to legal amendments or changes in operational practices, this could cause serious disruption to business continuity.

If environmental pollution occurs during the operation of waste treatment facilities due to noise, exhaust gas, leakage of hazardous substances, etc., this could result in liability for damages to nearby residents and obligations to conduct purification, as well as difficulty in obtaining or maintaining licenses due to a decline in social credibility. There is also a risk that additional costs may arise due to the introduction of new regulations or amendments to regulations concerning hazardous substances. The Group implements appropriate facility placement and environmental conservation measures and monitoring, but cannot completely eliminate the risk of environmental pollution occurring due to unforeseen circumstances.

If an accident such as a fire occurs due to the handling of combustible waste or specially controlled waste, this could cause disruption to business activities over an extended period due to human casualties or extensive damage to machinery and equipment. If improper handling is determined to constitute a violation of laws and regulations, there is also a risk of business suspension orders or license revocation. The Group has implemented both hardware and software measures, such as the introduction of an AI-based spark detection system, but these measures alone may not completely prevent the occurrence of accidents.

There is a risk that management information, customer information, and personal information could be leaked or lost externally due to cyberattacks, unauthorized access, system failures, human error, and other causes. Since part of the operation and maintenance of information systems is outsourced to third parties, there is also a risk of system failures occurring in areas beyond the Group's control. If an information leak occurs, it could lead to a loss of social credibility, liability for damages, and restrictions on business activities, and costs associated with responding to stricter regulations may also increase.

Obtaining licenses and building consensus with nearby residents are essential for opening new waste treatment facilities, and if consensus-building is delayed, revenue recognition for facility plans will be pushed back, increasing the burden of upfront costs. If a new plan for a final disposal site is delayed, it may become necessary to outsource final disposal to an external operator at a higher cost. If a plan is ultimately cancelled, not only would it become difficult to recover upfront costs, but it would also necessitate a review of the overall business plan, potentially having a material adverse effect on cash flow.

As of the end of March 2026, the balance of interest-bearing debt reached ¥115,740 million (interest-bearing debt ratio of 105.4%, net D/E ratio of 0.6x), and the Group expects to continue raising funds through interest-bearing debt for the acquisition of fixed assets and M&A. The Group seeks to mitigate risk through fixed-rate financing, but in a rising interest rate environment, the burden of interest payments on future borrowings may increase. The high level of interest-bearing debt constrains financial flexibility and carries the risk of adversely affecting business performance.