エンビプロ・ホールディングス（5698） – Consolidated Financial Results for the Six Months Ended December 31,2021

Note:This document is a translation of a part of the original Japanese version and provided for reference purposes only. In the event of any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail. Consolidated Financial Results for the Six Months Ended December 31, 2021 [Japanese GAAP] February 07, 2022 Company name: ENVIPRO HOLDINGS Inc. Stock exchange listing: Tokyo Stock Exchange Code number: 5698 URL: https://www.envipro.jp/ Representative: Tomikazu Sano Contact: Naoki Takekawa Phone: +81-544-21-3160 Scheduled date of filing quarterly securities report: February 10, 2022 Scheduled date of commencing dividend payments: – Availability of supplementary briefing material on quarterly financial results: Available Representative Director, President/CEO Director in charge of Management Department Schedule of quarterly financial results briefing session: Not scheduled (The briefing will be video streamed instead of holding a normal briefing session.) 1. Consolidated Financial Results for the Six Months Ended December 31, 2021 (July 01, 2021 to December 31, 2021) (1) Consolidated Operating Results Operating profit Ordinary profit (% indicates changes from the previous corresponding period.) Net sales (Amounts of less than one million yen are rounded down) Six months ended December 31, 2021 December 31, 2020 (Note) Comprehensive income: % 64.0 (11.1) Million yen 27,242 16,615 Six months ended December 31, 2021: Six months ended December 31, 2020: Million yen 1,494 532 % 180.9 (19.5) ¥ ¥ Million yen 1,759 713 % 146.7 (4.7) Profit attributable to owners of parent Million yen 1,270 489 % 159.6 (11.0) 1,294 million 501 million [ 158.0 %] (6.3) %] [ Basic earnings per share Diluted earnings per share Yen 85.97 33.21 Yen 82.21 31.83 Six months ended December 31, 2021 December 31, 2020 (2) Consolidated Financial Position Total assets Net assets Equity ratio As of December 31, 2021 June 30, 2021 Million yen 26,644 26,548 Million yen 14,288 13,333 % 52.1 48.8 (Reference) Equity: As of December 31, 2021: As of June 30, 2021: ¥ ¥ 13,890 million 12,959 million 2. Dividends Fiscal year ended June 30, 2021 Fiscal year ending June 30, 2022 Fiscal year ending June 30, 2022 (Forecast) Annual dividends 1st quarter-end 2nd quarter-end 3rd quarter-end Year-end Total Yen – – Yen 0.00 0.00 Yen – – Yen 25.00 33.00 Yen 25.00 33.00 (Note) Revision to the forecast for dividends announced most recently: No 3. Consolidated Financial Results Forecast for the Fiscal Year Ending June 30, 2022(July 01, 2021 to June 30, 2022) (% indicates changes from the previous corresponding period.) Basic earnings per share Profit attributable to owners of parent Operating profit Ordinary profit Net sales Full year Million yen 54,000 % Million yen 2,390 31.9 % Million yen 2,850 12.2 % Million yen 1,950 13.6 % 30.7 Yen 132.07 (Note) Revision to the financial results forecast announced most recently: No * Notes: (1) Changes in significant subsidiaries during the six months ended December 31, 2021 (changes in specified subsidiaries resulting in changes in scope of consolidation): (2) Accounting policies adopted specially for the preparation of quarterly consolidated financial statements: (3) Changes in accounting policies, changes in accounting estimates and retrospective restatement 1) Changes in accounting policies due to the revision of accounting standards: Yes 2) Changes in accounting policies other than 1) above: No 3) Changes in accounting estimates: No 4) Retrospective restatement: No No Yes (4) Total number of issued shares (common shares) December 31, 2021: June 30, 2021: 15,051,227 shares 15,051,227 shares 1) Total number of issued shares at the end of the period (including treasury shares): 2) Total number of treasury shares at the end of the period: December 31, 2021: June 30, 2021: 260,444 shares 286,091 shares 3) Average number of shares during the period: Six months ended December 31, 2021: Six months ended December 31, 2020: 14,775,059 shares 14,734,554 shares * These consolidated financial results are outside the scope of audit by certified public accountants or audit firms * Explanation of the proper use of financial results forecast and other notes The financial results forecast and other forward-looking statements in this material are based on information currently available to the Company and certain assumptions deemed to be reasonable, and actual results may differ significantly due to various factors. Please see the “(3) Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information” from page 5 of the attached document of this material for the conditions for financial and other results, as well as important matters to be aware of when using the financial results forecast. Table of Contents of Appendix 1. Qualitative Information on Quarterly Financial Results ……………………………………………………………………………………………………. 2 (1) Explanation of Business Results …………………………………………………………………………………………………………………………………… 2 (2) Explanation of Financial Position ……………………………………………………………………………………………………………………………….. 4 (3) Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information ……………………………………….. 5 2. Quarterly Consolidated Financial Statements and Primary Notes ………………………………………………………………………………………. 6 (1) Quarterly Consolidated Balance Sheets ……………………………………………………………………………………………………………………….. 6 (2) Quarterly Consolidated Statements of Income and Comprehensive Income ………………………………………………………………………. 8 (3) Quarterly Consolidated Statements of Cash Flows ………………………………………………………………………………………………………. 10 (4) Notes to the Quarterly Consolidated Financial Statements ……………………………………………………………………………………………. 12 (Notes on Going Concern Assumption) …………………………………………………………………………………………………………………………… 12 (Notes in the Case of Significant Changes in Shareholders’ Equity) ……………………………………………………………………………………. 12 (Adoption of Special Accounting Methods for Preparing Quarterly Consolidated Financial Statements) ……………………………………. 12 (Changes in Accounting Policies) …………………………………………………………………………………………………………………………………….. 12 (Additional Information) ……………………………………………………………………………………………………………………………………………….. 12 (Segment Information) ……………………………………………………………………………………………………………………………………………………. 14 (Business Combinations) ………………………………………………………………………………………………………………………………………………. 17 (Significant Subsequent Events) ………………………………………………………………………………………………………………………………………. 18 1 1. Qualitative Information on Quarterly Financial Results (1) Explanation of Business Results In the Group’s business areas during the six months ended December 31, 2021, overseas demand for ferrous scrap was in a declining trend as a result of factors including concerns over an economic slowdown in China and the suppression of crude steel production due to stronger environmental restrictions aimed at decarbonization, in addition to the impact of the resurgence of the spread of COVID-19 in Southeast Asia. Meanwhile in Japan, demand for ferrous scrap was strong, with crude steel production increasing year on year due to forecasts of an increase in production in the manufacturing industries as demand recovers after the COVID-19 pandemic and the shortage in semiconductors is resolved. As a result, the ferrous scrap price remained high in Japan, and low overseas. The situation remains unclear at present, however, with concerns over the spread of new COVID-19 variants adding to soaring ocean freight rates and continuing reduction in production in the manufacturing industries primarily caused by the semiconductor shortage. The average ferrous scrap price (Tokyo Steel (Tahara) Tokkyu Grade Seaborne Price) during the six months ended December 31, 2021 was ¥52,266, trending upward from ¥28,008 of the same period of the previous fiscal year. With regard to nonferrous metals, etc., the average prices during the six months of copper, aluminum, nickel, and cobalt rose above those seen in the same period of the previous fiscal year. The use of recycled raw materials such as metal scrap is expected to become more appreciated amid the global trend of decarbonization. Amid this environment, in the six months ended December 31, 2021, with a strategic concept of challenging ourselves to resolve issues toward realizing a “Decarbonized society”, “Circular economy society” and “Distributed society” by viewing it as a business opportunity, based on our mission statement “Contribute to create a sustainable society”, we have proceeded with measures to establish “Realization of concrete cases of the circular economy” and “A disciplined group of autonomous individuals with emergent abilities.” As a result, for the six months ended December 31, 2021, net sales were ¥27,242 million (up 64.0% year on year), operating profit was ¥1,494 million (up 180.9% year on year), ordinary profit was ¥1,759 million (up 146.7% year on year), and profit attributable to owners of parent was ¥1,270 million (up 159.6% year on year). Results by segment are as follows, with net sales shown as inter-segment sales or sales including transfers. The classification of reportable segments has been changed from the end of the previous fiscal year, and the amounts stated for the six months ended December 31, 2020 are those compiled based on the classification of reportable segments following the change. Summary of Business Results by Segment Six months ended December 31, 2020 Six months ended December 31, 2021 Increase/decrease ratio Resource Circulation Business Global Trading Business Lithium-ion Battery Recycling Business Others Adjustment Total 5,989 12,270 125 166 (1,937) 16,615 9,891 20,233 376 243 (3,503) 27,242 (Million yen) 65.1％ 64.9％ 199.9％ 46.2％ － 64.0％ 2 Six months ended December 31, 2020 Six months ended December 31, 2021 Increase/decrease ratio Resource Circulation Business Global Trading Business Lithium-ion Battery Recycling Business Others Adjustment Total 737 164 (80) 37 (145) 713 1,405 371 92 81 (191) 1,759 (Note) Segment profit (loss) is adjusted with ordinary profit in the quarterly consolidated statements of income. (Million yen) 90.7％ 125.6％ － 120.7％ － 146.7％ 1) Resource Circulation Business Metal scrap prices rose year on year, and the profitability of resource recycling increased further against the backdrop of physical sorting technologies. In addition, handling volume of ferrous scrap discharged from large-scale demolished properties has been continuing to increase from the previous fiscal year, and combined with an increase in share of profit of entities accounted for using equity method, they have all led to an increase in both sales and profit. As a result, net sales in the Resource Circulation Business segment were ¥9,891 million (up 65.1% year on year), while segment profit was ¥1,405 million (up 90.7% year on year). 2) Global Trading Business The business environment remained challenging as exports of metal scrap to overseas destinations were sluggish with a resurgence of the spread of COVID-19, in addition to the combination of high domestic prices and low overseas prices for ferrous scrap, as well as soaring ocean freight rates due to difficulties in booking freighters. Amid such an environment, despite a decrease in handling volume, we secured revenue mainly through capturing domestic demand and sales that took advantage of price changes, leading to an increase in both sales and profit. As a result, net sales in the Global Trading Business segment were ¥20,233 million (up 64.9% year on year), while segment profit was ¥371 million (up 125.6% year on year). 3) Lithium-ion Battery Recycling Business In addition to rising prices of cobalt, nickel and copper, handling volume rose due to purchasing from leading battery manufacturers, etc. and acceptance of waste batteries processing by making use of the disposal business license. Also, a decrease in depreciation due to the recording of an impairment loss on non-current assets during the previous fiscal year led to an increase in both sales and profit. As a result, net sales in the Lithium-ion Battery Recycling Business segment were ¥376 million (up 199.9% year on year), while segment profit was ¥92 million (segment loss was ¥80 million in the same period of the previous fiscal year). 4) Others The Environment Management Consulting Business remained robust and posted increases in both sales and profit, owing to a strong stream of orders for services including CDP evaluation improvement support, formulation of carbon neutral strategies, TCFD response support, and consulting services mainly to facilitate a circular economy. Concerning the Welfare Service Business for Persons with Disabilities, although the usage rate at the facilities saw firm growth, mainly driven by the increased recognition of the facilities, profitability worsened due to the revision of compensation and personnel expenses increased owing to the improved employee treatment, leading 3 As a result, net sales in the Others segment were ¥243 million (up 46.2% year on year), while segment profit to an increase in sales and a decrease in profit. was ¥81 million (up 120.7% year on year). (2) Explanation of Financial Position 1) Status of assets, liabilities, and net assets Total assets at December 31, 2021 amounted to ¥26,644 million (up ¥95 million, or 0.4% from the end of the previous fiscal year). Current assets amounted to ¥16,989 million (down ¥511 million, or 2.9% from the end of the previous fiscal year). This was primarily due to decreases of ¥765 million in cash and deposits and ¥121 million in merchandise and finished goods, despite increases of ¥201 million in other current assets and ¥164 million in notes and accounts receivable – trade. Non-current assets amounted to ¥9,654 million (up ¥606 million, or 6.7% from the end of the previous fiscal year). This was mainly due to increases of ¥254 million in investment securities, ¥213 million in construction in progress, and ¥150 million in land, despite a decrease of ¥48 million in machinery, equipment and vehicles. Total liabilities at December 31, 2021 amounted to ¥12,355 million (down ¥859 million, or 6.5% from the end of the previous fiscal year). Current liabilities amounted to ¥9,169 million (down ¥595 million, or 6.1% from the end of the previous fiscal year). This was mainly due to decreases of ¥627 million in notes and accounts payable – trade, ¥367 million in other current liabilities, and ¥122 million in income taxes payable, despite an increase of ¥545 million in short-term borrowings. Non-current liabilities amounted to ¥3,186 million (down ¥264 million, or 7.7% from the end of the previous fiscal year). This was mainly due to a decrease of ¥238 million in long-term borrowings. Total net assets at December 31, 2021 amounted to ¥14,288 million (up ¥954 million, or 7.2% from the end of the previous fiscal year). This was mainly due to an increase of ¥901 million in retained earnings. Cash and cash equivalents at December 31, 2021 decreased by ¥766 million, or 10.8%, from the end of the 2) Status of Cash Flows previous fiscal year, to ¥6,351 million. (Cash flows from operating activities) Net cash used in operating activities amounted to ¥38 million, compared with ¥506 million used in operating activities in the same period of the previous fiscal year. This net cash outflow mainly reflected cash outflows of ¥630 million in decrease in trade payables, ¥587 million in income taxes paid, ¥488 million in decrease in accounts payable – other, ¥258 million in share of profit of entities accounted for using equity method and ¥153 million in increase in trade receivables, compared with cash inflows of ¥1,771 million in profit before income taxes and ¥343 million in depreciation. (Cash flows from investing activities) Net cash used in investing activities amounted to ¥380 million, compared with ¥117 million used in investing activities in the same period of the previous fiscal year. This net cash outflow mainly reflected cash outflows of ¥326 million in purchase of property, plant and equipment and ¥40 million in purchase of shares of subsidiaries resulting in change in scope of consolidation, compared with a cash inflow of ¥11 million in proceeds from sale of property, plant and equipment. (Cash flows from financing activities) Net cash used in financing activities amounted to ¥364 million, compared with ¥298 million used in financing activities in the same period of the previous fiscal year. This net cash outflow mainly reflected cash outflows of ¥577 million in repayments of long-term borrowings, ¥369 million in dividends paid, and ¥97 million in repayments of finance lease obligations, compared with cash inflows of ¥545 million in net increase in short-4 term borrowings and ¥135 million in proceeds from long-term borrowings. (3) Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information No changes have been made to the consolidated financial results forecast for the fiscal year ending June 30, 2022, announced in the Consolidated Financial Results dated August 11, 2021. 5 2. Quarterly Consolidated Financial Statements and Primary Notes (1) Quarterly Consolidated Balance Sheets (Thousand yen) As of June 30,2021 As of December 31,2021 Assets Current assets Cash and deposits Notes and accounts receivable – trade Merchandise and finished goods Work in process Raw materials and supplies Other Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Buildings and structures Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles, net Land Construction in progress Other Other, net Accumulated depreciation Total property, plant and equipment Intangible assets Goodwill Other Total intangible assets Investments and other assets Investment securities Investments in capital Deferred tax assets Other Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets 7,259,898 4,231,391 4,990,470 21,037 437,067 644,643 (83,829) 17,500,678 4,537,521 (2,727,161) 1,810,360 9,139,250 (7,571,635) 1,567,615 2,513,070 170,109 441,636 (383,589) 58,047 6,119,202 – 66,095 66,095 2,274,099 9,430 464,822 681,780 (567,423) 2,862,709 9,048,007 26,548,686 6,494,675 4,396,072 4,869,023 11,744 450,424 846,588 (79,037) 16,989,492 4,629,251 (2,847,027) 1,782,224 9,274,199 (7,755,501) 1,518,698 2,663,070 383,229 461,180 (388,746) 72,434 6,419,657 31,540 67,631 99,171 2,528,482 9,441 465,340 712,743 (580,234) 3,135,773 9,654,602 26,644,094 6 Liabilities Current liabilities Notes and accounts payable – trade Short-term borrowings Current portion of long-term borrowings Lease obligations Income taxes payable Provision for bonuses Other Total current liabilities Non-current liabilities Long-term borrowings Lease obligations Deferred tax liabilities for land revaluation Retirement benefit liability Asset retirement obligations Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Revaluation reserve for land Foreign currency translation adjustment Total accumulated other comprehensive income Share acquisition rights Non-controlling interests Total net assets Total liabilities and net assets (Thousand yen) As of June 30,2021 As of December 31,2021 2,163,255 4,810,000 687,773 76,987 556,206 65,631 1,405,164 9,765,018 2,466,423 223,069 64,282 389,489 169,070 137,827 3,450,162 13,215,180 1,524,830 1,957,981 9,653,565 (188,806) 12,947,571 4,999 8,633 (1,568) 12,064 326,584 47,284 13,333,505 26,548,686 1,535,737 5,355,000 662,589 76,389 433,875 68,331 1,037,764 9,169,687 2,228,309 186,128 64,282 397,566 172,373 137,480 3,186,140 12,355,827 1,524,830 1,970,746 10,554,662 (171,880) 13,878,358 1,205 8,633 2,452 12,290 326,584 71,032 14,288,266 26,644,094 7 (2) Quarterly Consolidated Statements of Income and Comprehensive Income Quarterly Consolidated Statements of Income (For the six months) (Thousand yen) For the six months ended December 31,2020 For the six months ended December 31,2021 16,615,723 13,203,881 3,411,842 2,879,773 532,069 958 19,168 138,346 3,970 13,952 4,918 27,580 208,895 18,973 1,266 – – 7,268 27,508 713,456 13,020 – 13,514 2,889 29,424 13,986 1,990 8,027 24,005 718,875 222,754 496,120 6,833 489,286 27,242,835 22,224,830 5,018,004 3,523,454 1,494,550 1,293 198 258,753 – 13,689 4,516 39,027 317,478 13,345 2,800 14,786 12,836 8,332 52,101 3,942 4,849 – 3,395 12,186 752 96 – 849 1,759,928 1,771,265 477,291 1,293,973 23,748 1,270,225 Selling, general and administrative expenses Net sales Cost of sales Gross profit Operating profit Non-operating income Interest income Dividend income Share of profit of entities accounted for using equity method Foreign exchange gains Rental income Outsourcing service income Other Total non-operating income Non-operating expenses Interest expenses Commission expenses Foreign exchange losses Provision of allowance for doubtful accounts Other Total non-operating expenses Ordinary profit Extraordinary income Gain on sale of non-current assets Reversal of allowance for doubtful accounts Insurance claim income Compensation income Total extraordinary income Extraordinary losses Loss on retirement of non-current assets Loss on sale of non-current assets Loss on disaster Total extraordinary losses Profit before income taxes Income taxes Profit Profit attributable to non-controlling interests Profit attributable to owners of parent 8 Quarterly Consolidated Statements of Comprehensive Income (For the six months) (Thousand yen) For the six months ended December 31,2020 For the six months ended December 31,2021 Profit Other comprehensive income Valuation difference on available-for-sale securities Foreign currency translation adjustment Total other comprehensive income Comprehensive income Comprehensive income attributable to Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests 496,120 17,841 (12,400) 5,441 501,562 494,728 6,833 1,293,973 (3,794) 4,020 225 1,294,199 1,270,451 23,748 9 (3) Quarterly Consolidated Statements of Cash Flows (Thousand yen) For the six months ended December 31,2020 For the six months ended December 31,2021 718,875 371,147 6,457 9,394 16,297 (20,126) 18,973 19,950 (138,346) 1,990 13,986 (13,020) (1,030,459) (343,689) 45,391 – 9,721 105,672 (2,889) (13,514) 8,027 (104,777) (320,938) 20,239 (18,824) (204,292) 12,886 13,514 (9,494) (506,908) (43,132) 43,600 (140,753) 34,731 (4,292) – (7,308) (117,155) 1,771,265 343,805 534 7,539 7,993 (1,492) 13,345 (29,933) (258,753) 96 752 (3,942) (153,162) 107,775 (630,658) (61,579) 1,533 (488,295) (3,395) – – (70,350) 553,079 1,549 (13,351) (587,857) 7,788 – – (38,791) (3,284) 2,400 (326,255) 11,011 (6,515) (40,744) (16,996) (380,385) Cash flows from operating activities Profit before income taxes Depreciation Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Increase (decrease) in retirement benefit liability Interest and dividend income Interest expenses Foreign exchange losses (gains) Share of loss (profit) of entities accounted for using equity method Loss on sale of non-current assets Loss on retirement of non-current assets Gain on sale of non-current assets Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Decrease (increase) in advance payments to suppliers Increase (decrease) in provision for bonuses Increase (decrease) in accounts payable – other Compensation income Insurance claim income Loss on disaster Other, net Subtotal Interest and dividends received Interest paid Income taxes paid Proceeds from compensation Proceeds from insurance income Payments associated with disaster loss Net cash provided by (used in) operating activities Cash flows from investing activities Payments into time deposits Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of intangible assets Purchase of shares of subsidiaries resulting in change in scope of consolidation Net cash provided by (used in) investing activities Other, net 10 Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Repayments of finance lease obligations Dividends paid Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (Thousand yen) For the six months ended December 31,2020 For the six months ended December 31,2021 260,000 153,324 (528,193) (36,248) (147,219) (298,336) (21,434) (943,834) 10,242,492 9,298,657 545,000 135,000 (577,798) (97,249) (369,128) (364,176) 17,246 (766,107) 7,117,207 6,351,100 11 (4) Notes to the Quarterly Consolidated Financial Statements (Notes on Going Concern Assumption) There is no relevant information. (Notes in the Case of Significant Changes in Shareholders’ Equity) There is no relevant information. (Adoption of Special Accounting Methods for Preparing Quarterly Consolidated Financial Statements) (Calculation of tax costs) The tax costs of the Company and its consolidated subsidiaries were calculated by reasonably estimating an effective tax rate after applying tax effect accounting to profit before income taxes for the fiscal year including the six months ended December 31, 2021, and by multiplying profit before income taxes by the estimated effective tax rate. (Changes in Accounting Policies) (Application of accounting standard for revenue recognition, etc.) The Company has applied the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020; hereinafter, “Revenue Recognition Accounting Standard”), etc. from the beginning of the first quarter under review, and thereby revenue is recognized when the control of promised goods or services is transferred to a customer at an amount to which the Company expects to be entitled in exchange for transferring the goods or services to the customer. The application of the Revenue Recognition Accounting Standard, etc., follows the transitional treatment stipulated in the proviso of Paragraph 84 of the Revenue Recognition Accounting Standard. The cumulative effect of retrospectively applying the new accounting policy to the periods prior to the beginning of the first quarter under review has been added to or subtracted from retained earnings at the beginning of the first quarter under review, and the new accounting policy has been applied from the beginning balance. However, the application has no impact on the beginning balance. As a result, net sales for the six months ended December 31, 2021 decreased by ¥1,831,636 thousand, and cost of sales decreased by ¥1, 831,636 thousand. In addition, in accordance with the transitional treatment stipulated in Paragraph 28-15 of the Accounting Standard for Quarterly Financial Reporting (ASBJ Statement No. 12, March 31, 2020), information on the components of revenue from contracts with customers for the six months ended December 31, 2020 is not presented. (Application of accounting standard for fair value measurement, etc.) The Company has applied the Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019; hereinafter “Fair Value Measurement Accounting Standard”), etc. from the beginning of the first quarter under review, and thereby the new accounting policy stipulated in the Fair Value Measurement Accounting Standard, etc. has been applied prospectively in accordance with the transitional treatment stipulated in Paragraph 19 of the Fair Value Measurement Accounting Standard and Paragraph 44-2 of the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019). The application of the accounting standard, etc. has no impact on the quarterly consolidated financial statements. (Additional Information) (Application of the practical solution on the treatment of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system) With regard to the transition to the group tax sharing system, which was instituted by the Act for Partial Amendment of the Income Tax Act, etc. (Act No. 8 of 2020), and the items for which the non-consolidated taxation system has been reviewed in line with the transition to the group tax sharing system, in accordance with Paragraph 3 of the Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System (Practical Issues Task Force No. 39, March 12 31, 2020), the Company and some of its domestic consolidated subsidiaries have applied the provisions of the pre-amendment tax law to deferred tax assets and liabilities, instead of the provisions of Paragraph 44 of the Implementation Guidance on Tax Effect Accounting (ASBJ Guidance No. 28, February 16, 2018). (Accounting estimates regarding the spread of COVID-19) In the six months ended December 31, 2021, there were no material changes to the assumptions used in the accounting estimates associated with the spread of COVID-19 stated in the annual securities report for the previous fiscal year. 13 (Segment Information) (Segment information) I Six months ended December 31, 2020 (July 1, 2020 to December 31, 2020) 1. Information on net sales and profit (loss) by reportable segment Reportable segment Resource Circulation Global Trading Lithium-ion Battery Recycling Total Others (Note 1) Total Adjustment (Note 2) (Thousand yen) Amount recorded in consolidated financial statements (Note 3) 4,196,336 12,196,173 70,518 16,463,028 152,694 16,615,723 － 16,615,723 1,793,640 74,609 54,957 1,923,207 14,169 1,937,377 (1,937,377) － 5,989,977 12,270,783 125,475 18,386,236 166,864 18,553,100 (1,937,377) 16,615,723 737,030 164,462 (80,010) 821,482 37,036 858,519 (145,063) 713,456 (Notes) 1. The “Others” business segment, which is not included in the reportable segments, includes the Environment Management Consulting Business and the Welfare Service Business for People with Disabilities. 2. Figures are adjusted as follows: The adjustment for segment profit of negative ¥145,063 thousand is corporate expenses not allocated to each reportable segment. Corporate expenses primarily consist of general and administrative expenses that are not attributed to each reportable segment. 3. Segment profit is adjusted with ordinary profit in the quarterly consolidated statements of income. 2. Information about impairment loss on non-current assets, goodwill, etc. by reportable segment Net sales Net sales to outside customers Inter-segment sales or transfers Total Segment profit (loss) (Significant impairment loss on non-current assets) There is no relevant information. (Significant changes in the amount of goodwill) There is no relevant information. (Significant gain on bargain purchase) There is no relevant information. 14 (Thousand yen) Amount recorded in consolidated financial statements (Note 3) 3,228,386 949,072 3,173,142 226,460 2,227,101 － － － － － － － I Six months ended December 31, 2021 (July 1, 2021 to December 31, 2021) 1. Information on net sales and profit (loss) and information on disaggregation of revenue by reportable segment Reportable segment Resource Circulation Global Trading Lithium-ion Battery Recycling Total Net sales Others (Note 1) Total Adjustment (Note 2) Ferrous scrap 2,446,558 14,992,114 － 17,438,673 － 17,438,673 17,438,673 Nonferrous scrap 1,709,793 1,518,593 － 3,228,386 － 3,228,386 Rubber products 949,072 － － 949,072 － 949,072 Used car － 3,173,142 － 3,173,142 － 3,173,142 Related LIB － － 226,460 226,460 － 226,460 Others 1,715,165 280,219 － 1,995,384 231,716 2,227,101 Revenue from contracts with customers Net sales to outside customers Inter-segment sales or transfers Total 6,820,589 19,964,069 226,460 27,011,119 231,716 27,242,835 27,242,835 6,820,589 19,964,069 226,460 27,011,119 231,716 27,242,835 － 27,242,835 3,071,230 269,902 149,896 3,491,028 12,212 3,503,241 (3,503,241) － 9,891,820 20,233,971 376,356 30,502,148 243,928 30,746,077 (3,503,241) 27,242,835 Segment profit 1,405,664 371,087 92,701 1,869,453 81,736 1,951,190 (191,261) 1,759,928 (Notes) 1. The “Others” business segment, which is not included in the reportable segments, includes the Environment Management Consulting Business and the Welfare Service Business for People with Disabilities. 2. Figures are adjusted as follows: The adjustment for segment profit of negative ¥191,261 thousand is corporate expenses not allocated to each reportable segment. Corporate expenses primarily consist of general and administrative expenses that are not attributed to each reportable segment. 3. Segment profit is adjusted with ordinary profit in the quarterly consolidated statements of income. 2. Items related to changes in the reportable segments As presented in Changes in Accounting Policies, the Company has applied the Revenue Recognition Accounting Standard, etc. from the beginning of the first quarter under review, and changed the accounting treatment of revenue recognition. Accordingly, the calculation method of profit (loss) in the reportable segments has been changed in the same manner. As a result of this change, compared with the previous method, net sales of Global Trading Business for the six months ended December 31, 2021 decreased by ¥ 1,831,636 thousand. However, there is no impact on segment profit. From the previous fiscal year, the classification of reportable segments has been changed from the previous four segments of Resource Circulation Business, Global Resource Circulation Business, Used-cars-related Business, and Others to the four segments of Resource Circulation Business, Global Trading Business, Lithium-ion Battery Recycling Business, and Others. The segment information for the six months ended December 31, 2020 was prepared based on the classification after the change. 15 3. Information about impairment loss on non-current assets and goodwill, etc. by reportable segment (Significant impairment loss on non-current assets) There is no relevant information. (Significant changes in the amount of goodwill) A significant change in the amount of goodwill occurred in the Resource Circulation Business during the six months ended December 31, 2021 due to the acquisition of all the shares of Fujimi BMS Co., Ltd. by ECONECOL Inc., and the inclusion of Fujimi BMS Co., Ltd. in the scope of consolidation. The amount of the increase in goodwill resulting from this event in the Resource Circulation Business during the three months ended December 31, 2021 was ¥32,075 thousand. (Significant gain on bargain purchase) There is no relevant information. 16 (Business Combinations) Business combination through acquisition (1) Overview of the business combination 1) Name and description of businesses of the acquired company Name of the acquired company: Fujimi BMS Co., Ltd. Description of businesses: Manufacture and sale of biomass fuels, etc. produced from plant resources Investigation, research and consulting related to the use and utilization of biomass Businesses related to the treatment, collection and transportation of industrial waste (waste wood) 2) Main reason for the business combination The Company aims to expand waste collection volumes and the range of items handled in the Resource Circulation Business segment, and has judged that the business combination will realize synergies through the integration of operations with ECONECOL Inc., located nearby, and will contribute to enhancing the Group’s corporate value by promoting its strategy of resource circulation dominance in the Shizuoka Prefecture area. 3) Date of the business combination November 1, 2021 4) Legal form of the business combination Acquisition of shares for a cash consideration 5) Name of the company after the business combination There will be no change in the company name 6) Proportion of voting rights acquired 100.0% 7) Grounds for determining the acquiring company The acquisition of shares by ECONECOL Inc. for a cash consideration (2) Period for which the financial results of the acquired company have been included in the quarterly consolidated statements of income for the six months ended December 31, 2021 From November 1, 2021 to December 31, 2021 (5) Goodwill arising from the business combination, reason for the goodwill, and method and period of (3) Acquisition cost for the acquired company and breakdown thereof Not disclosed in accordance with an agreement between the parties (4) Breakdown and amounts of major expenses related to the acquisition Advisory fees, etc. ¥12,500 thousand amortization 1) Amount of goodwill arising from the business combination ¥32,075 thousand 2) Reason for the goodwill 3) Method and period of amortization Amortized on a straight-line basis over 10 years 17 Acquisition cost exceeded the fair value of net assets at the time of the business combination, and the difference was recognized as goodwill. (Significant Subsequent Events) There is no relevant information. 18