Temporary closure of all stores in China due to the COVID-19 pandemic and spillover effects in Japan

「As the classification of COVID-19 under Japan’s Infectious Disease Control Law was changed to Class 5, economic activity continued to normalize, with signs of a recovery in personal consumption and inbound demand, and the economy followed a moderate recovery trend.」

「China’s results for the cumulative second-quarter period increased substantially year on year because normal operations were possible, despite the continued slow recovery of the Chinese economy and revenue remaining well below pre-COVID levels, whereas temporary closures under the zero-COVID policy had continued in the same period of the previous year.」

「China’s results for the cumulative first-quarter period increased substantially year on year because temporary closures under the zero-COVID policy had occurred in the same period of the previous year. However, China’s economic recovery from COVID-19 remained slow, and revenue had not returned to pre-COVID levels.」

「For the Group, temporary closures under China’s zero-COVID policy and the recognition of impairment losses had a significant impact, resulting in a net loss attributable to owners of the parent, although」

「China's performance in the third quarter (October to December) resulted in a segment loss, as revenue declined from the previous period. The 3 directly operated locations repeatedly closed under the Chinese government's strict zero-COVID policy, and the spread of infections after the policy was lifted in early December also affected customer numbers.」

「The 3 directly operated stores in Changchun and Shanghai that had been temporarily closed since March 2022 gradually resumed operations between June and July. However, the segment recorded a loss because strict preventive measures, including restrictions on movement, continued to be implemented, while the operating loss caused by the closure of all stores in the first quarter had a significant impact.」

「In this segment, revenue was ¥24 million, down 93.2% year on year, and the segment recorded an operating loss of ¥244 million, compared with segment profit of ¥33 million in the same period of the previous year.」

「Following temporary closures of all directly operated stores from early March 2022 in response to notices from the Chinese government concerning the spread of COVID-19, stores gradually resumed operations in areas where restrictions such as lockdowns had been lifted, and all directly operated stores had reopened by July 2022.」

「China’s results for the third quarter (October to December) ended with an operating profit, but revenue and profit declined year on year. Customer numbers and revenue had been recovering, benefiting from demand for domestic and nearby leisure activities as strict measures to contain infections remained in place in China instead of overseas travel. However, customer traffic was affected by infections near some directly operated stores, while repair and personnel expenses increased as the Company worked to restore performance after keeping them at the lowest possible levels in the previous fiscal year.」

「China’s results for the cumulative second-quarter period benefited from all stores that had been temporarily closed in the same period of the previous year resuming operations, as well as an economic environment in which activity, including leisure consumption, was gradually returning to normal as the number of infections across China declined. Revenue increased year on year, and the segment generated a profit in the first quarter (April to June).」

「China’s results for the cumulative first-quarter period increased substantially year on year. In addition to the reopening of 2 directly operated stores in Shanghai that had been temporarily closed in the same period of the previous year to prevent the spread of COVID-19, the recovery in economic activity, including leisure consumption, as the number of infections across China declined and activity gradually returned to normal, also contributed to the increase in revenue.」

「However, the third wave of infections arrived in November. Although the decline in customer traffic was not as severe as during the first wave, the use of dining facilities fell significantly.」

「In China, all stores except the directly operated Wuhan store have resumed operations, with customer traffic and revenue recovering. The Group has begun preparing for the upcoming peak season, and signs of improvement are emerging.」

「In Japan, as part of the Group’s measures against COVID-19, the Group temporarily closed directly operated stores, shortened operating hours and suspended the use of dining areas from April 2020. Even after reopening, the Group worked to provide greater reassurance and safety in terms of hygiene by limiting the number of visitors, checking temperatures upon entry, disinfecting facilities and encouraging hand disinfection.」

「The infectious disease caused by the novel coronavirus that emerged in Wuhan, Hubei Province, China, has spread from across China to countries around the world. As a result, many entertainment and tourism facilities in Shanghai and other parts of China, beginning with Wuhan, have been temporarily closed at the request of government authorities, and strict measures under which most people have refrained from going out have remained in place. In these circumstances, none of the Group’s Gokurakuyu hot spring facilities that had opened in China, comprising 4 directly operated stores and 4 franchise stores, could reasonably expect many customers to visit. After taking employee safety into consideration, the stores have therefore remained temporarily closed, with closures implemented sequentially from 24 January 2020. Depending on developments going forward, it may take additional time before normal operations can resume in China, potentially adversely affecting business activities, financial condition and the securing of earnings. There is also a possibility that concerns over the risk of infection in Japan may adversely affect the Company’s financial condition and ability to secure earnings.」