Overseas Business Environment and Investment Recovery Risks

「During the six-month interim period, the Company sold its UK business in the third quarter of the previous fiscal year in order to focus its portfolio on the engineering field, while seeking growth and earnings in China and other parts of Asia.」

「During the fiscal year, demand for human resources in the UK temporarily recovered after the COVID-19 pandemic subsided, but economic activity slowed toward year-end due to rising prices, higher interest rates and sluggish trade. As a result, staffing revenue during the busy season before Christmas remained weak, and revenue declined despite the effect of the yen's depreciation. On the profit side, the overall business margin was broadly flat, but the end of government subsidies for COVID-19 measures reduced profit. Meanwhile, the impairment loss of approximately ¥744 million on the UK subsidiary recorded in the previous fiscal year was no longer recognized. As a result, segment revenue for the fiscal year was ¥28,959 million, down 3.7% from the previous fiscal year, and segment profit was ¥398 million, compared with a segment loss of ¥417 million in the previous fiscal year.」

「During the nine-month period ended the third quarter, demand for human resources in the UK temporarily recovered after the COVID-19 pandemic subsided, but economic activity slowed toward year-end due to rising prices, higher interest rates and sluggish trade. Staffing revenue during the busy season before Christmas also remained weak, resulting in lower revenue despite the boost in yen terms from the yen's depreciation.」

「During the six-month period ended the second quarter, demand for human resources in the UK temporarily recovered during the summer, but economic activity slowed toward year-end due to rising prices and higher interest rates. As staffing revenue during the busy season before Christmas remained weak, revenue declined despite the boost in yen terms from the yen's depreciation. On the profit side, demand for direct hiring increased as demand for human resources recovered, and the high-margin employment-placement business performed well, improving the profitability of the business itself. However, the gain on the sale of shares in MTrec's subsidiary recorded in the previous fiscal year was no longer recognized. As a result, segment revenue for the six-month period ended the second quarter was ¥15,681 million, down 3.8% year on year, and segment profit was ¥566 million, down 13.2% year on year.」

「During the three-month period ended the first quarter, demand for human resources recovered in the UK after the COVID-19 pandemic subsided. However, the completion of Brexit constrained the procurement of labor from Europe, causing a supply shortage in the human resources market and reducing revenue from the staffing business. On the profit side, the high-margin employment-placement business performed well as demand for direct hiring increased amid efforts by customers to secure human resources, but the gain on the sale of shares in MTrec's subsidiary recorded in the previous fiscal year was no longer recognized. As a result, segment revenue for the three-month period ended the first quarter was ¥7,550 million, down 6.3% year on year, and segment profit was ¥173 million, down 59.2% year on year.」

「As a result, revenue for the segment during the fiscal year was ¥30,076 million, down 4.3% year on year, and segment profit was a loss of ¥417 million, compared with segment profit of ¥422 million in the previous fiscal year.」

「Meanwhile, the spread of COVID-19 and Brexit caused a labor shortage and higher recruitment costs, while the end of public subsidies provided since the previous year and other factors put pressure on profit.」

「During the three-month period ended the first quarter, the lockdown in the UK was gradually eased, and demand for staffing and paid employment-placement services and other human resources services began to recover.」

「To promote further growth and strengthen earnings in the UK business, we reviewed the composition of our business portfolio and decided, from the perspective of selection and concentration, to withdraw from manufacturing operations in the UK and transfer all shares of MTrec.」

「During the nine-month period ended the third quarter, the UK business was strongly affected by the lockdown at the beginning of the period, but revenue began to recover toward the end of the period, narrowing the decline in revenue.」

「During the six-month period ended the second quarter, labor demand declined substantially due to the lockdown in the UK. In response, the Company reduced fixed costs and made use of public support measures. In addition, it took a cautious view of future earnings from the UK business, recorded an impairment loss on goodwill as an extraordinary loss in the previous fiscal year, and reduced goodwill amortization. As a result, revenue was ¥12,093 million, down 16.9% year on year.」

「During the three-month period ended the first quarter, labor demand declined substantially due to the lockdown in the UK. In response, the Company reduced fixed costs and made use of public support measures. In addition, it took a cautious view of future earnings from the UK business, recorded an impairment loss on goodwill as an extraordinary loss in the previous fiscal year, and reduced goodwill amortization. As a result, revenue was ¥5,150 million, down 29.2% year on year.」

「Due to the substantial impact of the pound's depreciation on revenue in yen terms, revenue was ¥28,845 million, down 7.5% from the previous fiscal year.」

「In addition to Brexit, the impact of COVID-19 affected the UK business, and an impairment loss on goodwill was recorded as an extraordinary loss.」

「During the six-month period ended the second quarter, the UK business reported higher revenue in local-currency terms, but the substantial impact of the pound's depreciation resulted in lower revenue in yen terms. Revenue was ¥14,564 million, down 4.9% year on year.」

「Our Group is seeking to expand its overseas business in the UK, Southeast Asia and other regions. Accordingly, if the economic environment in the UK, Europe or Southeast Asia deteriorates significantly, or if the Group becomes unable to recover its investment funds because of differences in the business environment, including laws and regulations and market practices, the Group's performance may be affected.」

「At MTrec Limited, a UK staffing company accounting for the majority of this segment, production restraint by major existing customers due to uncertainty over the outlook for the UK economy continued. As a result of inventory adjustments and the conversion of temporary staff to permanent employees, revenue declined 15.5% year on year to ¥1,836 million. However, partly because one-time expenses such as M&A-related advisory fees were recorded in the first quarter of the previous fiscal year, segment profit was ¥48 million, compared with a segment loss of ¥165 million in the same period of the previous year.」

「As part of its overseas business expansion, our Group is considering expanding its business, including staffing services in Southeast Asia, using its subsidiary 香港虎斯科技有限公司 as a base. It also made UK staffing company MTrec Limited a subsidiary on 30 August 2016 and newly established PT.TRUST TECH ENGINEERING SERVICE INDONESIA on 28 September 2016. Accordingly, if the economic environment in the UK or Europe deteriorates significantly, or if the Group becomes unable to recover its investment funds because of differences in the business environment, including laws and regulations and market practices, the Group's performance may be affected.」

「Accordingly, if the economic environment in the UK or Europe deteriorates significantly, or if the Group becomes unable to recover its investment funds because of differences in the business environment, including laws and regulations and market practices, the Group's performance may be affected.」